Antitrust
Chapter 1: The Remedial Structure
In the US, the basic antitrust laws are enforced not only by governmental actions for injunctive relief, but
by criminal penalties and by private suits brought by injured parties (or by states on their behalf, parens
patriae) for treble damages, injunctive relief, and attorney fees. The exception id the Federal Trade
Commission Act, which is enforceable only through injunctive relief in cases brought by the FTC and
subject to judicial approval.
FTC cannot deem conduct “unfair unless the act or practice causes or is likely to cause substantial injury
to consumers which is not reasonably avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition.
To prove damages, a party must show: (1) that the antitrust violation was a material but-for cause of its
injury; (2) that its injury flowed from the anticompetitive effects of the violation; (3) that the link between
the violation and injury was sufficiently direct or proximate; and (4) the amount of damages it suffered
from the injury.
The Court has repeatedly held that in the absence of more precise proof, the fact finder may ‘conclude as
a matter of just and reasonable inference from the proof of the defendants’ wrongful acts and their
tendency to injure plaintiffs’ business, and from the evidence of the decline in prices, profits and values,
not shown to be attributable to other causes that defendants’ wrongful acts had caused damage to the
plaintiffs.
When multiple firms engage in a conspiracy that causes anticompetitive harm, their liability is joint and
several
The Supreme Court has also held that a defendant cannot even seek contribution from its co-conspirators
for their share of the damages caused.
Injunctive relief should be awarded not only (1) to prevent or undo the anticompetitive conduct but also
(2) to undo any anticompetitive effects the conduct had on the market and (3) to deny the defendant the
fruits of its antitrust violations.
Statute of Limitations
1. The Fraudulent Concealment Doctrine
2. The Continuing Conduct Doctrine
3. The Speculative Injury Doctrine
Chapter 2: Horizontal Agreements
2A: Relevant Laws & Basic Legal Elements
Horizontal Agreements are agreements between firms who operate at the same market level. Vertical
agreements are agreements between firms that are in some supply relation
The downstream market is the one that is closest to the ultimate consumer
The Sherman Act §1 requires that there is some sort of agreement made
Every agreement whose anticompetitive effects on trade outweigh its precompetitive effects is illegal
The following agreements have been held to be per se illegal: price-fixing, market divisions, output
restraints, and boycotts. When an agreement is per se illegal, the Court says it will consider neither any
procompetitive justifications the defendant might offer nor whether anticompetitive effects actually occur
If the per se rule does not apply, then general “rule of reason” review applies. Under this test, courts
consider on a case by case basis whether the agreement has a plausible procompetitive justification. If it
does, then the plaintiff must prove an anticompetitive effect either through direct proof or by showing
market power that can be used to infer the anticompetitive effect. If the anticompetitive effect is shown,
the defendant must prove the procompetitive justification empirically and that the challenged restraint is
the least restrictive means of accomplishing that procompetitive virtue. If that is proven, the court must
determine whether the anticompetitive effects outweigh the procompetitive effects.
First, the Supreme Court has held that even if a horizontal agreement “literally” constitutes price-fixing,
an output restraint or a boycott, it will not be deemed to fall within such per se illegal categories when a
procompetitive justification exists for the agreement in question. Second, the Court has held that even if a
restraint falls within the rule of reason, it will be condemned summarily as a “naked” restraint if no
procompetitive justification is offered.
The distinction between agreements between productively related and unrelated rivals suggests two sorts
of limitations. First, sometimes a productive rival collaboration might exist, but the price-fixing
agreements in question is unrelated to its advancement or the productive rival collaboration is nothing
more than a fig leaf to avoid per se scrutiny. In such cases, the courts generally apply the per se rule.
Secondly, professionals have traditionally engaged in self-regulation designed to correct the sort of
market failures that government agencies normally regulate in nonprofessional markets. Courts have
been less willing to per se condemn professional efforts to self-regulate.
Sherman Act §2 is generally targeted at unilateral conduct and thus does not require proof of an
agreement, other than for proving a conspiracy to monopolize. However, agreements or combination to
form a corporation or cartel that exercises monopoly power have long been held to constitute
monopolization in violation of §2 as well as an agreement in restraint of trade that violate §1.
2B: Horizontal Price-Fixing
United States v. Trenton Potteries
273 U.S. 392 (1927)
Issue: Whether a price-fixing arrangement between competitors is per se unlawful if the process are still
reasonable? Yes
The trial court judge ordered the jury that if it found the agreements or combination complained of, it
might return a verdict of guilty without regard to the reasonableness of the prices fixed or the good
intentions of the combining units
The respondents were 20 individuals and 23 corporations that combined to fix the prices of vitreous
pottery, they held 82% of the market share in the US
It does not follow that that agreements to fix or maintain prices are reasonable restraints and therefore
permitted by the statute, merely because the prices themselves are reasonable
The aim and result of every price-fixing agreement, if effective, is the elimination of one form of
competition
The public interest is best protected from the evils of monopoly and price control by the maintenance of
competition
The reasonable price fixed today may through economic and business changes become the unreasonable
price tomorrow
Uniform price-fixing by those controlling in any substantial manner a trade or business in interstate
commerce is prohibited by the Sherman Act, despite the reasonableness of the particular prices agreed
upon
BMI v. CBS
441 U.S. 1 (1979)
Issue: Whether the issuance by ASCAP and BMI to CBS of blanket licenses to copyrighted musical
compositions at fees negotiated by them is price fixing per se unlawful under the antitrust laws? No
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ASCAP issues licenses and distributes royalties to copyright owners in accordance with a
schedule reflecting the nature and amount of the use their music and other factors
Almost every domestic copyrighted composition is in the repertory either if ASCAP or BMI
Both organizations operate primarily through blanket licenses, which give the licensee the right to
perform any and all of the compositions owned by the members or affiliates as often as the
licensees desire for a stated term
ASCAP is required to grant to any user making written application a nonexclusive license to
perform all ASCAP compositions either for a period of time or on a per-program basis. ASCAP
may not insist on the blanket license, and the fee for the per-program license, which is to be based
on the revenues for the program on which ASCAP is played, must offer the applicant a genuine
economic choice between the pre-program license and the more common blanket license
ASCAP and BMI members have to be allowed to directly negotiate and license out their material
to whomever they want
ASCAP and BMI already work under a consent decree which has already scrutinized their
practices and has invalidated some of them
Congress under the Copyright Act has chosen to endorse blanket licenses
The blanket license is not a “naked restraint of trade with no purpose except stifling of competition” but
rather accompanies the integration of sales, monitoring, and enforcement against unauthorized copyright
use
It would be very expensive for single composers to go out and negotiate and enforce copyright
agreements
A middleman with a blanket license was an obvious necessity if the thousands of individual negotiation, a
virtual impossibility, were to be avoided
The blanket license is ultimately better for sellers and buyers; it makes a more efficient system and lowers
costs to all parties
Not all agreements among actual or potential competitors that have an impact on price are per se
violations of the Sherman Act or even unreasonable restraints
The blanket-license fee is not set by competition among individual copyright owners, and it is a fee for
the use of any composition covered by the license
If attacked the blanket license fee should be examined under the rule or reason and not as a per se
violation
Holding: A restraint ancillary to a productive collaboration among competitors may be lawful under
antitrust laws
Arizona v. Maricopa County Medical Soc’y
457 U.S 332 (1982)
Issue: Whether §1 of the Sherman Act has been violated by agreements among competing physicians
setting, by majority vote, the maximum fees that they may claim in full payment for health services
provided to policyholders of specified insurance plans? Yes
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The Maricopa Foundation for Medical Care is a nonprofit Arizona corporation composed of
licensed doctors of medicine, osteopathy, and podiatry engaged in private practice. 70% of
doctors
Each foundation made use of relative values and conversion factors in compiling its fees schedule
The fees schedules limit the amount that the member doctors may recover services performed for
patients insured under plans approved by foundations
We have analyzed most restraints under the so-called “rule of reason.” As its name suggests, the rule of
reason requires the fact finder to decide whether under all the circumstances of the case the restrictive
practice imposes an unreasonable restraint on competition
This Court has consistently and without deviation adhered to the principle that price-fixing agreements
are unlawful per se under the Sherman Act and that no showing of so-called competitive abuses or evils
which those agreements were designed to eliminate or alleviate may be interposed as a defense
The elimination of so-called competitive evils is no legal justification for price-fixing agreements
The doctors are competitors so there is no justification for the price-fixing agreement, it is a per se
violation of §1 of the Sherman Act
In BMI the so-called blanket license was entirely different from the product that any one composer was
able to sell by himself. Although there was little competition among individual composers for their
separate compositions, the blanket-license arrangement did not place any restraint on the right of any
individual copyright owner to sell his own compositions separately at any price
The foundations are not analogous to partnerships or other joint arrangements in which persons who
would otherwise be competitors pool their capital and share risks of loss as well as the opportunities for
profit
Texaco Inc. v. Dagher
126 S. Ct. 1276 (2006)
Issue: Whether it is per se illegal under §1 of the Sherman Act, for lawful, economically integrated joint
venture to set prices at which the joint venture sells its products? No
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From 1998 until 2002, Texaco and Shell collaborated in a joint venture, Equilon Enterprises, to
refine and sell gasoline in the western United States under the original Texaco and Shell brand
names
Texaco and Shell agreed to pool their resources and share the risks and profits from Equilon’s
activites
Texaco and Shell did not compete with one another in the relevant market-namely, the sale of gasoline to
service stations in the western US-but instead participated in that market jointly through their investments
in Equilon
The pricing policy challenged here amounts to little more than price setting by a single entity-albeit with
the context of a joint venture-and not a pricing agreement between competing entities with respect to their
competing products
When two partners set the price of their goods or services they are literally price fixing, but they are not
per se violation of the Sherman Act
We see no reason to treat Equilon differently just because it chose to sell gasoline under two distinct
brands at a single price
Ancillary Restraints Doctrine: The ancillary restraint doctrine simply provides that a restraint among
competitors that would otherwise be illegal may not be so where it is part of a broader business
combination that may lower prices, provide better products, or otherwise benefit consumers
Under the doctrine, courts must determine whether the nonventure restriction is a naked restraint on trade,
and thus invalid, or one that is ancillary to the legitimate and competitive purposes of the business
association, and thus valid
2C: Horizontal Output Restrictions
Horizontal agreements to restrict output below the competitive level are just the flip side of a horizontal
agreement to fix prices
Restrictions on output might also well be more effective because they can be easier to verify, more clearly
allocate market prices while allowing the precise level of those inflated prices to vary with market
changing market demand
NCAA v. Board of Regents of Univ. of Oklahoma
468 U.S. 85 (1984)
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The NCAA negotiated television rights with CBS and ABC, setting the maximum number of total
televised games and the minimum aggregate price each network had to pay college teams
Limiting any individual school to no more than six televised games, and requiring that each
network include at least 82 colleges in each two-year period
Colleges cannot negotiate on their own
There can be no doubt that the challenged practices of the NCAA constitute a “restraint of trade” in the
sense that they limit members’ freedom to negotiate and enter into their own television contracts
The NCAA has created a horizontal restraint, because the teams compete against each other for viewers
Because it places a ceiling on the number of games member institutions may televise, the horizontal
agreement places an artificial limit on the quantity of televised football that is available to broadcasters
and consumers
The minimum aggregate price in fact operates to preclude any price negotiation between broadcasters and
institution, thereby constituting horizontal price fixing
Apply the rule of reason because the case involves an industry in which horizontal restraints in
competition are essential if the product if the product is to be available at all
The integrity of the product cannot be preserved except by mutual agreement
BMI squarely holds that a joint selling arrangement may be so efficient that it will increase sellers’
aggregate output and thus be procompetitive
By fixing a price for television rights to all games, the NCAA creates a price structure that is
unresponsive to viewer demand and unrelated to the prices that would prevail in a competitive market
The absence of proof of market power does not justify a naked restriction on price or output. To the
contrary, when there is an agreement not to compete in terms of price or output, “no elaborate industry
analysis is required to demonstrate the anticompetitive character of such an agreement
Intercollegiate football telecasts generate an audience uniquely attractive to advertisers and that
competitors are unable to offer programming that can attract a similar audience
College broadcasts are a separate market and the NCAA has complete control over that market
The television plan protects ticket sales by limiting output, just as any monopolist increases revenues by
reducing output
The plan does not increase competition it limits it, the plan simply imposes a restriction on one source of
revenue that is more important to some colleges that to others
The finding that consumption will materially increase if the controls are removed is a compelling
demonstration that they do not in fact serve any such legitimate purpose
Test for determining whether college football broadcasts constituted a separate market, for purpose of
Sherman Act challenge to college athletic association's plan restricting price and output, was whether
there were other products that were reasonably suitable for televised association football games, and the
association in fact possessed market power in that intercollegiate television broadcast generated an
audience uniquely attracted to advertisers and competitors were unable to offer programming that could
attract a similar audience, and finding that advertisers would pay a premium price per viewer to reach
audiences watching college football because of their demographic characteristics was vivid evidence of
uniqueness of the product.
Asserted interest in maintaining a competitive balance among amateur athletic teams did not justify,
under Sherman Act rule of reason analysis, college athletic association's live television football broadcast
plan which restricted price and output, as subject restraints did not fit into the same mold as rules defining
conditions of contest, eligibility of participants or manner in which members of the joint enterprise share
responsibilities and benefits of the total venture, and plan was nationwide in scope and there was no
single league or tournament in which all college football teams competed or evidence of any intent to
equalize strength of teams in the various divisions into which association members were categorized and
the most important reason for rejecting the asserted competitive balance justification was finding that
many more games would be televised in free market than under the plan.
2D: Horizontal Market Divisions
Horizontal agreements between unrelated rivals to divide a market are per se illegal
Such market divisions generally involve territorial divisions, where each firm agrees to limit itself to a
geographic area different from the other firm
Bid rigging is also a form of market division, where the conspirators agree that only one of them will
really bid for each particular job
Palmer v. BRG
498 U.S. 46 (1990)
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HBJ and BRG entered into an agreement that gave BRG an exclusive license to market HBJ’s
material in Georgia and to use its trade name “Bar/Bri”
The parties agreed that HBJ would not compete with BRG in Georgia and that BRG would not
compete with HBJ outside of Georgia
Under the agreement HBJ received $100 per student enrolled in BRG and 40% of all revenues
over $350
Immediately after the agreement, the price of the course was increased from $150 to $400
The revenue-sharing formula in the 1980 agreement between BRG and HBJ, coupled with the price
increase that took place immediately after the parties agreed to cease competing with each other in 1980,
indicates that this agreement was formed for the purpose and with the effect of raising the price of the bar
review course
Horizontal territorial limitations are naked restraints of trade with no purpose except stifling competition
Such agreements are anticompetitive regardless of whether the parties split a market within which both do
business or whether they merely reserve one market for one and another for the other
E. Horizontal Agreements Not to Deal with Particular Firms
Horizontal agreements between unrelated rivals not to do business with another firm are considered per se
illegal boycotts under U.S. antitrust law
If competitors are being harmed without any benefit to competition or efficiency, then there seems little
reason to tolerate the abuse
1. Boycotts by Unrelated Rivals
Klor’s Inc. v. Broadway-Hale Stores, Inc.
359 U.S. 207 (1959)
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Klor claims that Broadway-hale and 10 national manufacturers and their distributors have
conspired to restrain and monopolize commerce
They claim that there is agreement either not to sell or to sell at very high prices and unfavorable
conditions
Broadway submitted 100s of affidavits from other stores in the area that still compete
We think Klor’s allegation clearly show one type of trade restraint and public harm the Sherman Act
forbids, and that defendants’ affidavits provide no defense for the charges
Group boycotts, or concerted refusals by traders to deal with other traders, have long been held to be
forbidden
This cannot be tolerated even if the merchant is a small one, and its destruction makes little difference to
the economy
Fashion Originators’ Guild of America v. FTC
312 U.S. 457 (1941)
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Some of the members of the combination design, manufacture, sell and distribute women’s
garments-chiefly dresses
Others are manufacturers, converters, or dyers of textiles from which these garments are made
The FOGA claims that others are copying there dresses (which are not protected under IP)
While continuing to compete with one another in many respects, combined among themselves to
combat and, if possible, destroy all competitions from the sale of garments which are copies of
their original
12,000 retailers have entered into the agreement, those that have not entered are red-carded and
the ones in the agreement cannot work with them
38% of dresses $6.75 and up and 60% of $10.75 and up
The Guild places heavy fines on retailers that cooperate with a red-card
It narrows the outlet to which garment and textile manufactures can sell and the sources from which
retailers can buy; subject all retailers and manufacturers who decline to comply with the Guild’s program
to an organized boycott; takes away the freedom of action of members by requiring each to reveal to the
Guild intimate details of their individual affairs. Direct suppression of competition
The boycott is a per se violation of the Sherman Act
2. Exclusions and Expulsions from a Productive Collaboration of Rivals
US v. Terminal Railroad Ass’n
224 U.S. 383 (1912)
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Jay Gould and various railroad companies formed the Terminal Railroad Association of St. Louis
which acquired and combined into one unitary system the only three ways of getting railroad cars
across the Mississippi river
The cost of construction and maintenance of railroad bridges over the river makes it impracticable
for every road desiring to enter or pass through the city to have its own bridge
The Court concluded that the mere combination of properties into the terminal company was not an illegal
merger because it allowed for a more efficient system of transportation
Unless the company acts as an impartial agent of all who, owing to conditions, are under compulsion, as
here exists to use its facilities
This agreement cannot be brought about unless the prohibition against the admission of other companies
to such control is stricken out and provision made for the admission of any company to an equal control
and management upon an equal basis with the present proprietary companies
First, by providing for the admission of any existing or future railroad to joint ownership and control of
the combined terminal properties, upon such just and reasonable terms as shall place such applying
company upon a plane of equality in respect of benefits and burdens with the present proprietary
companies
Second, such plan of reorganization must also provide definitely for the use of the terminal facilities by
any other railroad not electing to become a joint owner, upon such just and reasonable terms and
regulations as will, in respect of use, character, and cost of service, place every such company upon as
nearly an equal plane as may be with respect to expenses and charges as that occupied by the proprietary
companies
Associated Press v. US
326 U.S. 1 (1945)
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AP has 1,200 newspapers as its members
Each member receives the local news generated by every other member without having to have
staff in each area.
65% of newspapers and 83% of circulation
AP by-laws prohibit members from sharing news with non-members
If an applicant does not compete with a current member then it could join for free, if it competes
with a member than it could a) obtain that member’s permission to join or b) get the approval of a
majority of AP members and pay AP 10% of the total amount paid by members in that area since
1900
The by-laws on their face represent a constraint on competition
The net effect is seriously to limit the opportunity of any newspaper to enter these cities. Trade restraints
of this character, aimed at the destruction of competition, tend to block the initiative which brings
newcomers into the field and to frustrate the free enterprise system which it was the purpose of the
Sherman Act to protect
The by-laws give AP members a serious competitive advantage over non-members
Northwest Wholesale Stationers v. Pacific Stationary
472 U.S. 284 (1985)
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Northwest is a purchasing cooperative made up of approximately 100 office supply retailers in
the Pacific Northwest
The cooperative acts as a primary wholesaler for the retailers
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Retailers that are not members can purchase from Northwest at the same price as members
Northwest distributes profits to its members at the end of the year
The cooperative agreement permits the participating retailers to achieve economies of scale in
purchasing and warehousing that would otherwise be unavailable to them
In 1974, Northwest prohibited its members from wholesale operations
Pacific was allowed to continue its wholesale operations because of a grandfather clause, but was
kicked out in 1978 over disputed facts
No procedural protections for members does not necessarily create a per se application of antitrust rules
The rule-of-reason should be applied to cooperatives because they do have a procompetitive effect on the
market
The act of expulsion from a wholesale cooperative does not necessarily imply anticompetitive animus and
thereby raise a probability of anticompetitive effect
Unless the cooperative possesses market power or exclusive access to an element essential to effective
competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is
not warranted
A plaintiff seeking application of the per se rule must present a threshold case that the challenged activity
falls into a category likely to have a predominantly anticompetitive effect
The mere allegation of a concerted refusal to deal does not suffice because not all concerted refusals to
deal are predominantly anticompetitive
When the plaintiff challenges expulsion from a joint buying cooperative, some showing must be made
that the cooperative possesses market power or unique accesses to a business element necessary for
effective competition
Act of expulsion from wholesale cooperative does not necessarily imply anticompetitive animus and
thereby raise a probability of anticompetitive effect; absent showing that the cooperative possess market
power or unique access to a business element necessary for effective competition the Sherman Anti-Trust
Act rule of reason, rather than per se analysis, applies in action by expelled member charging considered
refusal to deal. Sherman Anti-Trust Act, § 1
F. Are Social Welfare Justifications Admissible?
National Society of Professional Engineers v. United States
435 U.S. 679 (1978)
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The Society’s Code of Ethics prohibits members from negotiating fees with clients until after the
engineer has been selected for the project
Clients cannot compare engineers based on price instead the society offers recommended fee
schedules
The society contends that competitive bidding would 1) inevitably result in engineers offering their
services at the lowest possible price, which would cause them to spend insufficient effort and instead
design unnecessarily expensive structures; 2) cause buyers to pick engineers purely on price rather than
quality, thus endangering public safety
The inquiry mandated by the rule of reason is whether the challenged agreement is one that promotes
competition or that suppresses competition
The purpose of the analysis is to form a judgment about the competitive significance of the restraint; it is
not to decide whether a policy favoring competition is in the public interest, or in the interest of the
member of an industry
The Society’s ban on competitive bidding prevents all customers from making price comparisons in the
initial selection of an engineer, and imposes the Society’s views of the costs and benefits of competition
on the entire marketplace
The Rule of Reason does not support a defense based on the assumption that competition itself is
unreasonable
Even assuming occasional expectations to the presumed consequences of competition, the statutory policy
precludes inquiry into the question whether a competition is good or bad
FTC v. Indiana Federation of Dentists
476 U.S. 447 (1986)
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Dental insurers try to contain costs by using x-rays and other information to review whether
dental care is unnecessary or more expensive than equally effective care
Typically the initial review is done by lay examiners, who either approve payment or refer the
claim to dentists hired by the insurer to make a final determination
Fearing a loss of money and professional independence, the Indiana Dental Association initially
organized dentists to agree not to submit x-rays to insurers
FTC said no way, so the Indiana Federation of Dentists broke off and continued the practice
The policy constitutes a concerted refusal to deal on particular terms with patients covered by group
dental insurance
The Federation’s policy takes the form of a horizontal agreement among the participating dentists to
withhold from their customers a particular service that they desire – the forwarding of x-rays to insurance
companies along with claims forms
Absent some countervailing procompetitive feature – such as, the creation of efficiencies in the operation
of a market or the provision of goods and services – such an agreement limiting consumer choice by
impeding the “ordinary give and take of the market place,” cannot be sustained under the Rule of Reason
Dentists contend that an unrestrained market in which consumers are given access to information they
believe to be relevant to their choices will lead them to make unwise and even dangerous decisions
Non-competitive quality-of-service justification are inadmissible to justify the denial of information to
consumers in the latter market, there is little reason to credit such justifications here
The Federation would still not be justified in deciding on behalf of its members’ customers that they did
not need the information: presumably, if that were the case, the discipline of the market would itself soon
result in the insurers’ abandoning their requests for x-rays
That a particular practice may be unlawful is not, in itself, a sufficient justification for collusion among
competitors to prevent it
FTC v. Superior Court Trial Lawyers Ass’n
493 U.S. 411 (1990)
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Under the D.C. Criminal Justice Act, private lawyers were appointed to represent indigent
criminal defendants
The rates were set to $30 an hour in a court and $20 an hour outside of court
Most of the appointments went to 100 lawyers known as CJA regulars
The CJA regulars combined to publically boycott serving indigents until their rates were raised
The rates were raised after the justice system shut down, the FTC challenged the boycott
Prior to the boycott the CJA lawyers were in competition with one another, each deciding independently
whether and how often to offer to provide services to the District at CJA rates
This constriction of supply is the essence of ‘price-fixing,’ whether it be accomplished by agreeing upon a
price, which will decrease the quantity demanded, or by agreeing upon an output, which will increase the
price offered
The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower
prices, but also better goods and services. This judgment recognizes that all elements of a bargain –
quality, service, safety, and durability – and not just immediate cost, are favorably affected by the free
opportunity to select among alternative offers
It is no excuse that the prices fixed are themselves reasonable
If small parties “were allowed to prove lack of market power, all parties would have the right, thus
introducing the enormous complexities of market definition into every price-fixing case
A rule that requires courts to apply the antitrust laws “prudently and with sensitivity” whenever an
economic boycott has an “expressive component” would create a gaping hole in the fabric of those laws
Every horizontal arrangement among competitors poses some threat to the free market
Conspirators need not achieve the dimensions of a monopoly, or even a degree of market power any
greater than that already disclosed by this record, to warrant condemnation under the antitrust laws
California Dental Ass’n v. FTC
526 U.S. 756 (1999)
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75% of California dentists belong to the Association (CDA)
The CDA prohibits: 1) advertising the quality of services, on the ground that they are not
susceptible to measurement or verification; and 2) price advertising that uses vague terms like
“low fees” or “as low as” and does not fully disclose all variables, like the dollar amount or
undiscounted fee for each service, the amount of the discount, and the length of time the discount
is offered and any other limitations
“Quick-look” analysis: an observer with even a rudimentary understanding of economics could conclude
that the arrangements in question would have an anticompetitive effect I customers and markets
It seems to us that the CDA’s advertising restriction might plausibly be thought to have a net
procompetitive effect, or possibly no effect at all on competition. The restriction on both discount and
non-discount advertising are, at least on their face, designed to avoid false or deceptive advertising in a
market characterized by striking disparities between the information to the professional and the patient
Court of Appeals: the CDA’s disclosure requirements appear to prohibit across-the-board discounts
because it is simply infeasible to disclose all of the information that is required, followed by the
observation that the record provides no evidence that the rule has in fact led to increased disclosure or
transparency of dental pricing
It is possible to understand the CDA’s restriction on unverifiable quality and comfort advertising as
nothing more than a ban on puffery
This case warrants more than just a “quick-look” it is possible that the restraint increases competition or
has not effect on it
United States v. Brown University
5 F.3d 658 (3d Cir. 1993)
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MIT and eight other Ivy League schools collaborated to agree on financial aid for students in
need
No school could give merit based scholarships
Not pure charity because even with financial aid the students need to pay the rest of tuition
The agreement affords MIT with the benefit of an overrepresentation of high caliber students, with the
concomitant institutional prestige, without forcing MIT to be responsive to market forces in terms of its
tuition
Because the Overlap Agreement aims to restrain competitive bidding and deprive prospective students of
the ability to utilize and compare prices in selecting among schools, it is anticompetitive on its face
Even if an anticompetitive restraint is intended to achieve a legitimate objective, the restraint only
survives a rule of reason analysis if it is reasonably necessary to achieve the legitimate objectives
proffered by the defendant
G. Does Intellectual Property Law Justify an Anticompetitive Restraint?
United States v. General Electric
272 U.S. 476 (1926)
Issue: The validity of a license granted by General Electric to the Westinghouse Company to make, use,
and sell lamps under the patents owned by the former.
GE set prices and terms of sale
If the patentee goes further and licenses the selling of the articles, may he limit the selling by limiting the
method of sale and the price? We think he may do so provided the conditions of sale are normally and
reasonably adapted to secure pecuniary reward for the patentee’s monopoly
A patentee may not attach to the article made by him or with his consent a condition running with the
article in the hands of purchasers limiting the price at which one who becomes its owner for full
consideration shall part with it
License is valid
United States v. New Wrinkle
342 U.S. 371 (1952)

Wrinkle finish competitors pooled their patents in a new corporation (New Wrinkle), New
Wrinkle then licensed the patents out to the companies with fixes terms
Two or more patentees in the same patent field may not legally combine their valid patent monopolies to
secure mutual benefits for themselves through contractual agreements, between themselves and other
licensees, for control of the sale price of the patented devices
Price control through cross-licensing was barred as beyond the patent monopoly
Patent pooling is a violation of the Sherman Act
H. Buyer Cartels
Mandeville Island Farms v. American Crystal Sugar
334 U.S. 219 (1948)


Sugar beet refiners in Northern California all agreed to use their average profits to calculate beet
prices, which resulted in all three paying the same price for beets
Beet growers have to use the refiners because the beets go bad
Their dominant position, together with the obstacles created by the necessity for large capital investment
and the time required to make it productive, makes outlet through new competition practically impossible
Buyer cartels that set prices are illegal
Chapter 3: Unilateral Conduct
A. Relevant Laws and Basic Legal Elements
Sherman Act § 2, 15 U.S.C. § 2: Every person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to monopolize any part of the trade or commerce
among the several States, or with foreign nations, shall be deemed guilty of a felony\
Monopolization: 1) the possession of monopoly power in the relevant market and 2) the willful
acquisition or maintenance of that power as distinguished from growth or development as a consequence
of a superior product, business acumen, or historic accident
Simplified: 1) monopoly power and 2) anticompetitive or exclusionary conduct
Attempted Monopolization: Proof that 1) that the defendant has engaged in predatory or anticompetitive
conduct with 2) a specific intent to monopolize and 3) a dangerous probability of achieving monopoly
power
Conspiracy to Monopolize: Evidence that 1) a conspiracy 2) a specific intent to monopolize and 3) an
overt act in furtherance of the conspiracy
Federal Trade Commission Act: Unfair methods of competition in or affecting commerce are hereby
declared unlawful
This is even more general because it covers unilateral anticompetitive conduct even by a firm without
monopoly power. The net result is that, compared to Sherman Act §2, the FTC Act lowers the power
requirement and makes any anticompetitive conduct by a firm with market power potentially actionable,
but also limits enforcement to prospective relief sought by a disinterested government agency
Robinson-Patman Act, 15 U.S.C. § 13(a): It shall be unlawful for any person engaged in commerce, in the
course of such commerce, either directly or indirectly, to discriminate in price between different
purchasers of commodities of like grade and quality, where either or any of the purchases involved in
such discrimination are in commerce, where such commodities are sold for use, consumption, or resale
within the United States or any Territory thereof or the District of Columbia or any insular possession or
other place under the jurisdiction of the United States, and where the effect of such discrimination may be
substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure,
destroy, or prevent competition with any person who either grants or knowingly receives the benefit of
such discrimination, or with customers of either of them
This statute does not prohibit all price discrimination, but only price discrimination that threatens
anticompetitive effects either in the defendant’s market or to downstream markets
B. The Power Element
United States v. Du Pont & Co.
351 U.S. 377 (1966)

Du Pont produced almost 75% of the cellophane sold in the US, and cellophane constituted less
than 20% of all flexible packaging material sales
The ultimate consideration in such a determination is whether the defendants control the price and
competition in the market for such part of trade or commerce as they are charged with monopolizing
This interchangeability is largely gauged by the purchase of competing products for similar uses
considering the price, characteristics and adaptability of the competing commodities
In considering what is the relevant market for determining the control of price and competition, no more
definite rule can be declared than that commodities reasonably interchangeable by consumers for the
same purposes make up that “part of the trade or commerce,” monopolization of which may be illegal
If a slight decrease in the price of cellophane causes a considerable number of customers of other flexible
wrappings to switch to cellophane, it would be an indication that a high cross-elasticity of demand exists
between them; that the products compete in the same market
Cellophane is part of the flexible packaging market
Eastman Kodak v. Image Technical Services
504 U.S. 451 (1992)
Issue: Whether a defendant’s lack of market power in the primary equipment market precludes, as a
matter of law, the possibility of market power in the derivative aftermarkets



Kodak had originally had a deal with third parties to repair its products for customers
Kodak then adopted a policy to limit parts to the third parties
The cost of repairs went up significantly for customers
Because of the switch it is illegal, if Kodak never allowed others to repair its shit then it would be legal
Kodak’s lack of power in the primary market does not make its conduct in the aftermarket any better
Kodak’s switch was bad because customers were deprived information and costs
For the service-market price to affect equipment demand, consumer must inform themselves of the total
cost at the time of purchase, consumers must engage in accurate lifecycle pricing
This affects unsophisticated customers more than sophisticated customers
The evidence that Kodak controls 100% off the parts market and 80 to 90% of the service market, is
enough to preclude summary judgment
Scalia: Kodak’s customers are sophisticated
United States v. AMR Corp.
335 F. 3d 1109 (10th Cir. 2003)


Challenge to American Airlines predatory pricing out of its hub in Dallas/Fort Worth
1) Priced its product on the routes in question below cost; 2) intended to recoup these losses by
charging supracompetitive prices either on the four core routes themselves, or on those routes
where it stands to exclude competition by means of it reputation for predation
Predatory pricing means pricing below some appropriate measure of cost
Costs can generally be divided into those that are “fixed” and do not vary with the level of output and
those that are “variable” and do vary with the level of output
Marginal cost, the cost that results from producing an additional increment of output, is primarily a
function of variable cost because fixed costs, as the name would imply, are largely unaffected by changes
in output
For predatory pricing cases, especially those involving allegedly predatory production increases, the ideal
measure of cost would be marginal cost because “as long as a firm’s prices exceed its marginal cost, each
additional sale decreases losses or increases profits
A commonly accepted proxy for marginal cost in predatory pricing cases is Average Variable Cost, the
average of those costs that vary with the level of output
Because it is uncontested that American did not price below AVC for any route as a whole…the
government as not succeeded in establishing the first element of Brook Group, pricing below an
appropriate measure of cost
Verizon Communications v. Law Offices of Trinko
540 U.S. 398 (2004)
The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not
unlawful; it is an important element of the free market system. The opportunity to charge monopoly
prices, at least for a short period, is what attracts “business acumen” in the first place; it induces risk
taking that produces innovation and economic growth. To safe guard the incentive to innovate, the
possession of monopoly power will not be found unlawful unless it is accompanied by an element of
anticompetitive conduct.
4. Unilateral Refusals to Deal
Otter Tail Power Company v. US
410 U.S. 366 (1973)



Otter sells electric power at retail in 465 towns in MN, ND, and SD
Three municipalities decided to build their own plants and compete with Otter
Otter refused to sell the new systems energy at wholesale and refused to agree to wheel power
from other suppliers of wholesale energy
There is nothing in the legislative history which reveals a purpose to insulate electric power companies
for the operation of antitrust laws
Otter’s refusals to sell at wholesale or to wheel were solely to prevent municipal power systems from
eroding its monopolistic position
Otter is guilty of antitrust violations
Aspen Skiing Co. v. Aspen Highlands Skiing Corp.
472 U.S. 585 (1985)





Aspen Skiing owned 3 of the 4 mountains in Aspen
Highlands owned 1 mountain
They both had an agreement to sell 6-day passes that covered all mountains
Highlands received a small and decreasing share of the revenues until Aspen stopped the deal
altogether
Highlands tried to buy tickets in bulk and continue to sell the 4 mountain pass til Aspen stopped it
The original deal was popular among customers
The sale of its 3-area, 6-day ticket, particularly when it was sold at a discount below the daily ticket price,
deterred the ticket holders from skiing at Highlands
Aspen sacrificed short-run benefits and consumer goodwill in exchange for a perceived long-run impact
on its smaller rival
Because there was an original collaboration that was terminated by the monopoly holder at the expense of
both and Highlands in particular the actions are illegal
Verizon v. Trinko
540 U.S. 398 (2004)



Verizon is an LEC
In 1996, Congress passed a law which forced the LECs to share their infrastructure with
competitors
Verizon caused a lot of trouble and Trinko sued in a class action because Verizon charged
excessive rates to competitors in order or them to use the system
Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to
serve their customers. Compelling such firms to share the source of their advantage is in some tension
with the underlying purpose*408 of antitrust law, since it may lessen the incentive for the monopolist, the
rival, or both to invest in those economically beneficial facilities. Enforced sharing also requires antitrust
courts to act as central planners, identifying the proper price, quantity, and other terms of dealing-a role
for which they are ill suited. Moreover, compelling negotiation between competitors may facilitate the
supreme evil of antitrust: collusion. Thus, as a general matter, the Sherman Act “does not restrict the long
recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise
his own independent discretion as to parties with whom he will deal.”
Verizon’s alleged insufficient assistance in the provision of service to rivals is not a recognized antitrust
claim under this Court’s existing refusal-to-deal precedents
There is already a regulatory regime (FCC) in control, judicial oversight and the risk of false-positives
make it very difficult for the Court to monitor and control the activity of Verizon
Price Squeezes
Suppose a dominant firm both controls an input its rival needs and competes downstream with that rival.
Rather than refusing to supply that input to its rival, it sets the price for that input relatively high and sets
its competing downstream price relatively low, so that the difference between the input price and the
downstream price is not large enough to support the costs of its rival, thus driving the rival out of business
Town of Concord v. Boston Edison Co.
915 F.2d 17 (1st Cir. 1990)
Issue: Whether a pricing practice known as a price squeeze violates the antitrust laws when it takes place
in a fully regulated industry



Judge Learned Hand, in Alcoa wrote that a price squeeze violates Sherman Act § 2 when 1) the
firm conducting the squeeze has monopoly power at the first industry level, 2) its price at this
level is “higher than fair price,” and 3) its price at the second level is so low that its competitors
cannot match the price and still make a living profit
Boston Edison generates power and distributes it at retail to customers all over Massachusetts, its
prices are regulated at both levels
Two towns distribute electricity but claim that after Edison received permission to increase
wholesale prices they have been squeezed and they risk losing customers
To reach Alcoa’s conclusion that the price squeeze is exclusionary, one must believe that the
anticompetitive risks associated with a price squeeze outweigh the possible benefits and the adverse
administrative considerations
We have limited our holding by stating that “normally” a price squeeze will not constitute an exclusionary
practice in the context of a fully regulated monopoly, thereby leaving cases involving exceptional
circumstances for another day
D. Casual Connection between First and Second Elements Required?
US antitrust law does not merely require monopoly power in the abstract, but a causal connection
between the challenged exclusionary conduct and the acquisition or maintenance of that power
The “ize” suffix proves crucial, for it indicates that the gravamen of the offense is the illicit creation or
maintenance of a monopoly power that otherwise would not exist
E. Attempted Monopolization
Lorain Journal v. US
342 U.S. 143 (1951)



The Journal enjoyed a substantial monopoly in Lorain of the mass dissemination of news and
advertising, both local and national character
A radio station WEOL established itself and operated in the area
Under the Journal’s plan, it refused to accept local advertisements in the Journal from any Lorain
County advertiser who advertised or who appellants believed to be about to advertise on WEOL
It is consistent with that result to hold her that a single newspaper, already enjoying a substantial
monopoly in its area, violates the “attempt to monopolize” clause of §2 when it uses its monopoly to
destroy threatened competition
United States v. American Airlines
743 F.2d 1114 (5th Cir. 1984)


American and Braniff together enjoyed a market share of more than ninety percent of the
passengers on non-stop flights between DFW and eight major cities, and more than sixty percent
of the passengers on flights between DFW and seven other cities
The American CEO called the Braniff CEO and proposed to fix prices, the Braniff CEO recorded
the conversation and sent it to the government
The application of section 2 principles to defendant’s conduct will deter the formation of monopolies at
their outset when the unlawful schemes are proposed, and thus, will strengthen the Act
We hold that an agreement is not an absolute prerequisite or the offense of attempted joint
monopolization and that the government’s complaint sufficiently alleged facts that if proved would permit
a finding of attempted monopolization
Spectrum Sports v. McQuillan
506 U.S. 447 (1993)



The sole manufacturer of Sorbothan, a shock-absorbing polymer had five regional distributors
In 1982, the manufacturer decided to shift medical products to one national distributor, and
informed McQuillan that it must give up its athletic shoe distributorship if it wanted to retain its
right to distribute equestrian products
When McQuillan refused to stop distributing athletic products, the manufacturer terminated
McQuillan as a distributor, and appointed another company to equestrian products, and Spectrum
Sports to athletic products
The Court’s decisions since Swift have reflected the view that the plaintiff charging attempted
monopolization must prove a dangerous probability of actual monopolization, which has generally
required a definition of the relevant market and examination of market power
A plaintiff must prove 1) that the defendant has engaged in predatory or anticompetitive conduct with 2) a
specific intent to monopolize and 3) a dangerous probability of achieving monopoly power
In order to determine whether there is a dangerous probability of monopolization, courts have found it
necessary to consider the relevant market and the defendant’s ability to lessen or destroy competition in
that market
The law directs itself not against conduct which is competitive, even severely so, but against conduct
which unfairly tends to destroy competition itself
Demonstrating the dangerous probability of monopolization in an attempt case also requires inquiry into
the relevant product and geographic market and the defendant’s economic power in that market
Chapter 4: Vertical Agreements that Restrict Dealing with Rivals
A. Introduction
Most are downstream agreements between a defendant and its buyers that restrict the ability of those
buyers to buy from the defendant’s rivals. The analysis applies equally to upstream agreements between
a defendant and its suppliers that restrict the ability of those suppliers to supply the defendant’s rivals
Such vertical exclusionary agreements can be challenged under multiple statutes. They can be challenged
under Sherman Act § 1 because they involve agreements that constitute restraints of trade if they are on
balance anticompetitive. They can also be challenged under Sherman Act § 2 if the defendant has
monopoly power and the exclusionary agreements anticompetitively help obtain or maintain such
monopoly power. The FTC Act § 5 can also be used: this statute effectively requires two elements: 1)
sales or discounts of goods that are conditioned on the purchaser not dealing with rivals; and 2) proof that
their effect may be to substantially lessen competition
B. Exclusive Dealing
Exclusive dealing agreements are an agreement to sell a product on the condition that the buyer takes all
(or effectively all) of its requirements of that product from the seller
The major anticompetitive concern is that such agreements might foreclose enough of the market to rival
competition to impair competition. Such foreclosure might impede rival efficiency, entry, existence, or
expandability, any of which can anticompetitively increase the market power of the foreclosing firm
United States v. Griffith
334 U.S. 100 (1948)




The appellees were a chain of affiliated movie theaters that in April 1939 operated in 85 towns
across Oklahoma, Texas, and New Mexico.
Fifty-three of the towns (62%) were closed towns, i.e., towns in which there were no competing
theaters
Five years earlier the appellees had theaters in approximately 37 towns, 19 were closed
The chain negotiated agreements with each distributor that generally licensed first-run exhibitions
of all that distributor’s films that season in all the chain’s towns, with retail specified often a fixed
minimum paid by the chain as a whole
The consequence of such a use of monopoly power is that films are licensed on a non-competitive basis in
what otherwise are competitive situations. That is the effect whether one exhibitor makes the bargain
with the distributor or whether two or more exhibitions lump together their buying power, as appellees
did her
It follows a fortiori that the use of monopoly power, however lawfully acquired, to foreclose competition,
to gain a competitive advantage, or to destroy a competitor, is unlawful
Standard Fashion v. Magrane-Houston
258 U.S. 346 (1922)



Petitioner is a New York corporation engaged in the manufacture and distribution of clothing
patterns, respondent was a retailer who agreed to sell the petitioner’s patterns
Petitioner agreed to sell to respondent standard patterns at a discount of 50% from retail, the
respondent agreed not to sell or permit to be sold on its premises during the term of the contract
any other make or patterns
Out of 52,000 so-called pattern agencies in the entire country the petitioner controlled 2/5s of the
market
Section 3 condemns sales or agreement where the effect of such sale or contract of sale “may” be to
substantially lessen competition or tend to create a monopoly
Both courts below found that the contract substantially lessened competition and tended to create a
monopoly. Affirmed
Standard Oil and Standard Stations v. United States
337 U.S. 293 (1949)


Standard oil has exclusive supply agreements with independent stations of 16% of retail gasoline
outlets in the Western US
It is the largest seller of gas in the Western US
The issue before us is whether the requirement of showing that the effect of the agreements “may be to
substantially lessen competition” may be met simply by proof that a substantial portion of commerce is
affected or whether it must also be demonstrated that competitive activity has actually diminished or
probably will diminish
The only situation in which the protection of good will may necessitate the use of tying clauses is where
specification for a substitute would be so detailed that they could not practicably be supplied
The existence of market control of the tying device, therefore, affords a strong foundation for the
presumption that it has been or probably will be used to limit competition in the tied product also
We conclude, that they qualifying clause of § 3 is satisfied by proof that competition has been foreclosed
in a substantial share of the line of commerce affected
Standard’s use of the contracts creates just such a potential clog on competition as it was the purpose of §
3 to remove wherever, were it to become actual, it would impede a substantial amount of competitive
activity
FTC v. Motion Picture Advertising Service
344 U.S. 392 (1953)




Respondent is a producer and distributor of advertising motion pictures which depict and describe
commodities offered for sale by commercial establishments
Respondent contracts with theatre owners for the display of these advertising films…These
contracts run for terms up to five years, the majority being for one or two years
A substantial number of them contains a provision that the theatre owner will display only
advertising films furnish by the respondent
Respondent and three other advertising firms, together had exclusive arrangements for advertising
films with approximately ¾ of the total number of theatres in the US, Respondent contracts with
40% of US theatres
The Commission found that the exclusive contracts have limited the outlets for films of competitors and
has forced some competitors out of business because if their inability to obtain outlets for their advertising
films
Due to the exclusive contracts, respondent and the three other major companies have foreclosed to
competitors 75% of all available outlets in the US
Tampa Electric v. Nashville Coal
365 U.S. 320 (1961)



Review of a declaratory judgment holding illegal under § 3 of the Clayton Act a requirements
contract between the parties providing for the purchase by petitioner of all the coal it would
require as boiler fuel at its Gannon Station in Tampa
The agreement was for not less than 225,000 tons of coal per unit per year for 20 years
The coal company decided after the electric company spent 7.5 million on its coal burners that
they contract was illegal and terminated
In practical application, even though a contract is found to be an exclusive-dealing agreement, it does not
violate the section unless the court believes it probable that performance of the contract will foreclose
competition in a substantial share of the line of commerce affected
First, the line of commerce, i.e., the type of goods, wares, or merchandise involved must be determined,
where the is in controversy, on the basis of the facts peculiar to the case
Second, the area of effective competition in the known line of commerce must be charted by careful
selection of the market area in which the seller operates, and to which the purchaser can practicably turn
for suppliers. The threatened foreclosure of competition must be in relation to the market affected
Third, the competition foreclosed by the contract must be found to constitute a substantial share of the
relevant market. That is to say, the opportunities for other traders to enter into or remain in that market
must be significantly limited
The line of commerce here is coal
By far the bulk of the overwhelming tonnage marketed from the same producing area serves Tampa is
sold outside of Georgia and Florida, and the producers were eager to sell more coal in those states
Statistics show that the amount of coal in the contract is less than 1% of the coal on the entire market
The 20-year period of the contract is singles out as the principal vice, but at least in the case of public
utilities the assurance of a steady and ample supply of fuel is necessary in the public interest
We need not discuss the respondent’s further contention that the contract also violates §1 and §2 of the
Sherman Act, for if it does not fall within the broader proscription of the §3 of the Clayton Act it follows
that it is not forbidden by those of the former
C. Tying
Tying is a refusal to sell one product unless the buyer also takes another product. The product that will
not be sold without the other is called the tying product, and generally it is the product in which the
defendant has the greatest market power. The tied product is the one that buyers have to take in order to
get the tying product
The rule is per se in the sense that it condemns tying without requiring a showing that any substantial
share of the tied market has been foreclosed. Rather, it suffices that the tie covers a nontrivial dollar
amount of the tied product. But it is only a quasi-per se rule because it requires proof the defendant has
market power in the tying product
Four elements:
1. Separate Tying and Tied Products: The allegedly tied items cannot be mere components of a single
product. As noted, courts normally infer a single product from competitive market practices. However,
courts will also find a single product where the bundle combines components into a new product that
operates better when bundled together by the defendant than when bundled together by the end user
Two items might also be deemed parts of a single product if IP law encourages bundling them together
2. Tying Conditions: The defendant must have sold the tying product on the condition that the purchaser
takes the seller’s tied product. Such a condition might take the form of package discounts that few buyers
would resist
3. Nontrivial Tied Sales: There must be a nontrivial dollar amount of sales in the tied product. A plaintiff
need not show that a substantial share of the ties product is foreclosed
4. Tying Market Power: The defendant must have market power in the tying product. The Supreme
Court held that a market share of 30% standing alone was not enough and another declining to infer such
power from the mere existence of a patent
Even when those conditions have been met the defendant may still show that the tie has a procompetitive
justification that cannot be adequately furthered by a less restrictive alternative and that offsets any
anticompetitive harm
United Shoe Machinery v. US
258 U.S. 451 (1922)


United Shoe sells shoe making machinery, and controls 95% of that market
Untied Shoe made its customers sign agreements that they would only use its products and if they
used a competitors they would lose the lease to the United Shoe machines needed to make their
shoes
These covenants signed by the lessee and binding upon him effectually prevent him from acquiring the
machinery of a competitor of the lessor except at the risk of forfeiting the right to use machines furnished
by United Shoe
The law applies to goods, wares, and machinery patented or unpatented
No matter how good the machines of the company may be, or how efficient its services, it is not at liberty
to lease its machines upon conditions prohibited by a valid law of the US
The patent grant does not limit the right of Congress to enact legislation not interfering with the legitimate
rights secured by the patent but prohibiting in the public interest the making of agreements which may
lessen competition and build up monopoly
International Salt v. United States
332 U.S. 392 (1947)

International Salt leases two of its patented machines to company, it requires that the companies
buy salt for the machines from them
By contracting to close this market (salt) against competition, International has engaged in a restraint of
trade for which its patents afford no immunity from the antitrust laws
International urges that since under the leases it remained under an obligation to repair and maintain the
machines, it was reasonable to confine their use to its own salt because its high quality assured
satisfactory functioning and low maintenance cost
Of course, a lessor may impose on a lessee reasonable restriction designed in good faith to minimize
maintenance burdens and to assure satisfactory operation, but it cannot use that to foreclose all
competition if competitors can make an equal product
Rules for use of leased machinery must not be disguised restraints of free competition, though they may
set reasonable standards which all suppliers must meet
Times-Picayune Publishing v. United States
345 U.S. 594 (1953)



The defendant owns and publishes the morning Time-Picayune and the evening States
Buyers of space for general display and classified advertising in its publication may purchase
only combined insertions appearing in both the morning and evening papers, and not in either
separately
The only rival in New Orleans publishes the evening Item
By conditioning his sale of one commodity on the purchase of another a seller coerces the abdication of
buyers’ independent judgment as to the “tied” product’s merits and insulated it from the competitive
stresses of the open market
Two newspapers under single ownership at the same place, time, and terms sell indistinguishable products
to advertisers; no dominant “tying” product exists, one may be viewed as “tying” the other
The record shows that the Item has actually increased its profits
The practice has actually made the process of advertising more efficient for the paper
By adopting the unit plan for general display linage at the time it did, the Publishing Company devised
not a novel restrictive scheme but aligned itself with the industry’s guide, legal or illegal in particular
cases that is found to be
Jefferson Parish Hospital v. Hyde
466 U.S. 2 (1984)

The hospital was a party to a contract providing that all anesthesiologist services required by the
hospital’s patients would be performed by Roux & Associates
It is clear, however, that every refusal to sell two products separately cannot be said to restrain
competition. If each of the products may be purchased separately in a competitive market, one seller’s
decision to sell the two in a single package imposes no unreasonable restraint on either market,
particularly if competing suppliers are free to sell either the entire package or its several parts
Per se condemnation, condemnation without inquiry into actual market conditions, is only appropriate id
the existence of forcing is probable
The answer to the question whether one or two products are involved turns not on the functional relation
between them, but rather on the character of the demand for the two items
Thus is this case no tying arrangement can exist unless there is sufficient demand for the purchase of
anesthesiological services separate from hospital services to identify a distinct product market in which it
is efficient to offer anesthesiological services separately from hospital services
The record amply supports the conclusion that consumers differentiate between anesthesiological services
and the other hospital services provided by petitioners
70% of the patients residing in Jefferson Parish enter hospitals other than East Jefferson
The fact that a substantial majority of the parish’s residents elect not to enter East Jefferson means that the
geographic data does not establish the kind of dominant market position that obviates the need for further
inquiry into actual competitive concerns
Even if Roux did not have an exclusive contract, the range of alternatives open to the patient would be
severely limited by the nature of the transaction and the hospital’s unquestioned right to exercise some
control over the identity and the number of doctors to whom it accords staff privileges
Illinois Tool Works Inc. v. Independent Ink, Inc.
126 S.Ct 1281 (2006)
A patent does not necessarily confer market power upon the patentee, the plaintiff must prove that the
defendant has market power in the tying product
D. Loyalty and Bundled Discounts
Loyalty discounts are agreements whereby a seller gives buyers a price discount if buyers remain loyal to
the seller by buying all, or some high percentage, of the relevant product from the seller
Bundled discounts are agreements to charge the buyer less if he takes both product A and B then if the
buyer where to buy A and B separately
United States v. Lowe's Inc.
371 U.S. 38 (1962)
These consolidated appeals present a key question the validity under section 1 of the Sherman Act of
block booking of copyrighted feature motion pictures for television exhibition
Each defendant had in selling to television stations, conditioned the license or sale of one or more feature
films upon the acceptance of the station of a package or block containing one or more unwanted or
inferior films
The requisite economic power is presumed when the tying product is patented or copyrighted
Television stations forced by appellants to take unwanted films were denied access to films marketed by
other distributors who, in turn, are foreclosed from selling to the stations
Block booking is illegal
FTC v Brown Shoe
384 U.S. 316 (1966)
The complaint alleged that under this plan Brown had entered into contracts or franchises a substantial
number of its independent retail shoe store operator customers which require said customers to restrict
their purchases of shoes for resale to the brown lines in which prohibited them from purchasing, stacking
or reselling shoes manufactured by competitors of Brown Shoe
Brown's customers who entered into these restrictive franchise agreements, so the complaint charged,
were given in return special treatment and valuable benefits which were not granted to Brown's customers
who did not enter into the agreements
Brown is the second largest manufacturer of shoes in the nation
Section 3 requires proof that the conduct may substantially lessen competition or tend to create a
monopoly
We reject the argument that proof of this § 3 elements must be made for the commission has the power
under § 5 to arrest trade restraints and then set the sea without proof that they amount to an outright
violation of §3 of the Clayton act or other provisions of the antitrust laws
Advanced Business Systems v. SCM Corp.
415 F.2d 55 (4th Cir. 1969)
Tie-ins are non-coercive, and therefore legal, only if the components are separately available to the
customer on a basis as favorable as the tie-in agreement
SmithKline Corp. v. Eli Lilly & Co.
575 F.2d 1056 (3d Cir. 1978)
The court determined that the relevant product market is the nonprofit hospital market for a class of
antibiotic drugs known as cephalosporins and that the relevant geographic market is the United States
SmithKline’s Ancef is identical to the cefazolin introduced shortly thereafter by Lilly under the trade
name Kefzol
Keflin and Keflex are patented, Kefzol is not; Lilly gave a 3% bonus rebate to customers who bought
Kefzol along with the patented products
In sum, the act of willful acquisition and maintenance of monopoly power is brought about by linking
products and which Lilly faces no competition Keflin and Keflex with a competitive product, Kefzol
1) with the bundled discounts, SmithKline had a gross margin of 47.5% but had a negative return on
sales, and if it lowered its cost to Lilly’s, it would have a negative return on large accounts a positive 4%
return on average accounts that would nonetheless not be large enough to warrant retaining salespersons
to promote the product; and 2) without the bundled discounts, SmithKline would in the short run have a
had a return of 4.6% that that would probably not worn standing business but in the long run could have
gained enough volume and experience to lower its cost to Lilly's and enjoy an average return on sales of
8.5% that would warrant staying in business
Ortho Diagnostic Systems v. Abott Laboratories
920 F.Supp. 455 (S.D.N.Y. 1996)
Only price cutting that threatens equally or more efficient firms is condemned under Section 2. In
consequence, this court holds that a Section 2 plaintiff in a case like this, a case in which a monopolist 1)
cases competition only part of the complementary group of products, 2) offers the products both as a
package and individually, and 3) effectively forces its competitors to absorb the differential between the
bundled and unbundle prices of the product in which the monopolist has market power, must allege and
prove either that a) the monopolist has price below its average variable cost or b) the plaintiff is at least as
efficient a producer of the competitive product as the defendant, but that the defendants pricing makes it
unprofitable for the plaintiff to continue to produce
Abbott not only has priced its products above and its average variable costs, it has priced them above
Ortho’s costs as well
Concord Boat v. Brunswick Corp.
207 F.3d 1039 (8th Cir. 2000)
A number of boat builders brought this antitrust action against Stern Drive engine manufacturer
Brunswick Corp.
Brunswick has a 75% market share
From 1984 to 1994, Brunswick offered a 3% discount to boat builders who bought 80% of their engines
from the company, a 2% discount for 70% of all purchases, and a 1% discount for those who talk 60% of
their needs from Brunswick
Another feature was added to the program in 1989 to offer long-term discounts of an additional 1 or 2%
to anyone who signed a market share agreement for two to three years
Nobody forced boatmakers individually to accept these terms, they accepted these contracts because they
individually got a deal from it
The principal criteria used to evaluate the reasonableness of a contractual agreement include the extent to
which competition has been foreclosed and a substantial share of the relevant market, the duration of any
exclusive arrangement, and the height of entry barriers
Boat builders were free to walk away from the discounts at any time, and they in fact switch to OMC
engines and various points when not manufacturer offered superior discounts
In order to make out their case they had to produce evidence to show that Brunswick's market share
discount programs where an unreasonable contractual arrangement, based on the amount of market
foreclosure, exclusivity, and the erection of entry barriers
Because cutting prices in order to increase business often is the very essence of competition, which
antitrust laws were designed to encourage, it is beyond the practical ability of a judicial tribunal to control
above cost discounting without courting intolerable risk of chilling legitimate price cutting
Le Page’s v. 3M
324 F.3d 141 (3d. Cir. 2003)
Held that: (1) manufacturer's exclusionary conduct could violate Sherman Act's monopolization
provision, even if manufacturer never priced its transparent tape below its cost; (2) manufacturer's
conduct had anticompetitive effect; (3) manufacturer's conduct did not have legitimate business
justification; and (4) competitor's damages expert was not required to disaggregate damages caused by
manufacturer's unlawful activity from those caused by its lawful activity when estimating damages.
Note on the US lower court splits on loyalty and bundled discounts
Clayton act section 3 explicitly makes it unlawful to substantially lessen competition by selling goods
with a discount is conditioned on the buyer not buying from rivals, which has been read to cover bundled
or unbundled agreements of this sort whenever they have the practical effect of inducing such loyalty.
Supreme Court cases have also established that it is not an antitrust offense that buyers were not 100%
precluded by the loyalty condition, could have avoided a loyalty or bundling condition by paying more, or
could have terminated a loyalty condition at will by forgoing such benefits. Nor has any Supreme Court
antitrust case finding loyalty discounts illegal required a below cost price. But these cases all were before
1967 and the lack of recent Supreme Court cases has led to splits in modern lower courts on various key
issues in addition to the splits on foreclosure thresholds and determine ability of relevance noted in
section 4B
First, lower courts are split on whether loyalty discounts must result in prices that are below cost give rise
to antitrust liability
Second, lower courts are split on whether loyalty condition must be at or near 100% to be actionable
under antitrust law. Some suggest they must be. Others have held a need not be
Third, lower courts are split and tests applicable to bundled discounts. Some courts and bundled discount
cases have concluded that the issue is whether the tied product is below the defendants cost once all of the
discounts and the tying product are attributed to it. Others have condemned under loyalty discounts
unless the components are separately available to the customer on a basis as favorable as the tying
arrangement. And yet others have condemned bundled discounts whenever they have help maintain
monopoly power by making rebates antimonopoly product contingent and taking a non-monopoly
product
Fourth, courts are split on whether to apply a form of abbreviated rule of reason review the loyalty of
bundled discounts the defendant fails to articulate any procompetitive efficiencies. LePage’s focused on
the defendant's failure to offer a procompetitive justification in finding the defendant liable even though
the foreclosure share was never established, thus implicitly adopting abbreviated rule of reason review. In
contrast, Concord Boat found no liability even though the defendant failed to throw offer any plausible
procompetitive justifications, thus implicitly rejecting abbreviated rule of reason review
Chapter 5: Agreements and Conduct that Arguably Distort Downstream
Competition in Distributing a Supplier’s Products
A. Introduction
With vertical distributional agreements that restrain the prices at which dealers can resell the upstream
firm's product, or restrain where or to whom they can Sally, the concern is generally that price or nonprice competition among downstream dealers might be lessened
B. Intraband Distributional Restraints on Resale
Vertical agreements between manufacturers and dealers that fixed the prices at which dealers can resell
the manufacturers plan are often called vertical minimum price-fixing resale price maintenance
In US law vertical minimum price-fixing is per se illegal even though vertical non-price restraints and
maximum price-fixing are governed by the rule of reason
Dr. Miles Med. Co. v. John D. Park & Sons Co.
220 U.S. 373 (1911)
Agreements or accommodations between dealers, having for their sole purpose the destruction of
competition and the fixing of prices, are injures to the public interest and void. They are not saved by the
advantages to which the participants expect to derive from the enhance price to the consumer
Vertical price-fixing is per se illegal
2. Vertical Non-price Restraints on Distribution
Vertical agreements to restrain distribution of a manufacturer's brand in ways other than price analyze
similarities with vertical restraints that set minimum prices, but have many significant differences as well
the most important type of vertical nonprice agreements are those that limit to whom a dealer can resell
the manufacturers product. Sometimes these take the form of vertical territorial restraints, limiting dealers
to a particular geographic area. Other times they reflect customer limitations, such as limiting one dealer
to reselling to commercial users and another reselling took consumers
Continental T.V. v. GTE Sylvania
433 U.S. 36 (1977)
Restriction in franchise agreement between manufacturer of television sets and retailer barring retailer
from selling franchised products from location other than that specified in the agreement, although
indistinguishable from the retail customer restriction in the Schwinn case, should be judged under the
traditional rule of reason standard: overruling the per se rule
3. Vertical Maximum Price-Fixing
Vertical maximum price-fixing cannot further the reduction of free riding dealer services. Instead, it
seems to reflect quite directly the manufacturers procompetitive interest in minimizing the retail profit
margin. Vertical agreements that fixed maximum prices also don't raise the same anti-competitive
concerns is agreements that set minimum prices because they can't induce dealers to engage in brand
pushing and unlikely to reflect dealer market power or to help facilitate oligopolistic coordination by
manufacturers. The only exception would seem to be the case where maximum is really a minimum
State Oil v. Kahn
522 U.S. 3 (1997)
Vertical maximum price-fixing could effectively channel distribution through large or specially advantage
dealers. It is unclear, that a supplier would profit from limiting its market by excluding potential dealers.
Further, although vertical maximum price-fixing may limit the liability of inefficient dealers, that
consequence is not necessarily harmful to competition and consumers
Although we have acknowledged the possibility that maximum pricing mainmast minimum pricing, we
believe that such conduct as with the other concerns articulated in prior cases can be appropriately
recognized and punished under the rule of reason
Nor do we hold that it cannot vertical maximum price-fixing inevitably has anticompetitive consequences
in exclusive dealing context
Vertical maximum price-fixing, like the majority of commercial arrangement subject to the antitrust laws,
should be evaluated under the rule of reason
Business Electronics v. Sharp Electronics
485 U.S. 717 (1988)
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In 1968. Petitioner became the exclusive retailer in Houston Texas area of electronic calculators
manufactured by the respondent Sharp electronics Corporation
In 1972, respondent appointed Gilbert Hartwell as a second retailer in the Houston area
The respondent published a list of suggested minimum retail prices, but it's written dealership
agreements with petitioner and Harwell did not obligate either to observe them, or to charge any
other specific prices
Petitioner's retail prices were often below respondent suggested retail prices and Jerry below
Hartwell's retail prices, even though Harwell to sometimes priced below respondent suggested
retail prices
In June 1973, Hartwell gave respondent the ultimatum that Harwell would terminate his
dealership unless respondent ended its relationship with petitioner within 30 days. Respondent
terminated petitioner's dealership in July 1973
Although vertical agreements on resale prices have been illegal per se we recognize that the scope of per
se illegality should be narrow in the context of vertical restraints
So long as interbrand competition existed, that would provide a significant check on any attempt to
exploit interbrand market power
The per se illegality of vertical restraints would create a perverse incentive for manufacturers to integrate
vertically into distribution, now, hardly conducive to fostering the creation and maintenance of small
businesses there is a presumption in favor of a rule of reason standard; that parch or from that standard
must be justified by demonstrable economic effect, such as the facilitation of cartelizing, rather than
formalistic distinction; that interbrand competition is the primary concern of the antitrust laws; and that
rules in this area should be formulated with a view towards protecting the doctrine of the rule of reason
There has been no showing here the agreement between a manufacturer and a dealer to terminate a price
cutter, without a further agreement on the price or price levels to be charged by the remaining dealer,
almost always tends to restrict competition and reduce output
Without an agreement with the remaining dealer on price, the manufacture both retains its incentive to
cheat on any manufacture level cartel and cannot as easily be used to organize and hold together a retail
level cartel
Restraints imposed by agreement between competitors have it traditionally been denominated as
horizontal restraints, and those imposed by agreements between firms at different levels of distribution as
vertical restraints
Petitioner has provided no support for the proposition that vertical price agreements generally underlie
agreements to terminate a price cutter
NYNEX v. Discon
525 U.S. 128 (1998)
In this case we ask whether the antitrust rule that group boycotts are illegal per se, applies to a buyer's
decision to buy from one seller rather than another, one that decision cannot be justified in terms of
ordinary competitive objectives. We hold that the per se group boycott rule does not apply
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This case involves business of removing obsolete telephone equipment
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Discon claims that Material Enterprises had switched its purchasers from Discon to Discon
competitor AT&T technologies as a part of an attempt to defraud local telephone service
customers by hoodwinking regulators
Material Enterprises would pay AT&T technologies more than Discon, because they could pass
the higher prices onto New York telephone, which in turn could pass those prices onto telephone
consumers in the form of higher regulatory agency approved telephone services
At the end of the year, Material Enterprises would receive a special rebate from AT&T
technologies, which Material Enterprises would share with its parent
Precedent limits the per se rule in the boycott context cases involving horizontal agreements among direct
competitors
This precedent makes the per se rule inapplicable for the case before us concerns only a vertical
agreement and a vertical restraint, a restraint that takes the form of depriving a supplier of a potential
customer
Regardless of the fraud in this case that is for other larger decide not antitrust law
The complaint provides no sound basis for assuming the contrary, its simple allegation of harm to Discon
does not automatically show injury to competition
C. Price Discrimination that Arguably Distorts Downstream Competition
Primary-line price discrimination involves cases where the concern is that the lower price is targeted at
customers of the seller’s rivals and will discipline the rivals or drive them out of the market
Secondary-line price discrimination instead involves cases where the concern is that the businesses that
buy at the higher price will be at a competitive disadvantage, thus distorting competition on the
downstream market for those businesses compete
Tertiary-line price discrimination raises the same concern is secondary line price discrimination one level
further downstream; that customers of favored buyers might have an unfair competitive advantage over
customers of disfavored buyers
Robinson-Patman Act § 2, 15 U.S.C. § 13
(a) Price; selection of customers
It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly
or indirectly, to discriminate in price between different purchasers of commodities of like grade and
quality, where either or any of the purchases involved in such discrimination are in commerce, where
such commodities are sold for use, consumption, or resale within the United States or any Territory
thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the
United States, and where the effect of such discrimination may be substantially to lessen competition or
tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any
person who either grants or knowingly receives the benefit of such discrimination, or with customers of
either of them: Provided, That nothing herein contained shall prevent differentials which make only due
allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing
methods or quantities in which such commodities are to such purchasers sold or delivered: Provided,
however, That the Federal Trade Commission may, after due investigation and hearing to all interested
parties, fix and establish quantity limits, and revise the same as it finds necessary, as to particular
commodities or classes of commodities, where it finds that available purchasers in greater quantities are
so few as to render differentials on account thereof unjustly discriminatory or promotive of monopoly in
any line of commerce; and the foregoing shall then not be construed to permit differentials based on
differences in quantities greater than those so fixed and established: And provided further, That nothing
herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce
from selecting their own customers in bona fide transactions and not in restraint of trade: And provided
further, That nothing herein contained shall prevent price changes from time to time where in response to
changing conditions affecting the market for or the marketability of the goods concerned, such as but not
limited to actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress
sales under court process, or sales in good faith in discontinuance of business in the goods concerned.
(b) Burden of rebutting prima-facie case of discrimination
Upon proof being made, at any hearing on a complaint under this section, that there has been
discrimination in price or services or facilities furnished, the burden of rebutting the prima-facie case thus
made by showing justification shall be upon the person charged with a violation of this section, and
unless justification shall be affirmatively shown, the Commission is authorized to issue an order
terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller
rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or
facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a
competitor, or the services or facilities furnished by a competitor.
FTC v. Morton Salt Co.
334 U.S. 37 (1948)
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Respondent sells its finest brand table salt, known as blue label, I what it terms a standard
quantity discount system available to all customers
Under this system the purchasers pay a delivered price and the cost to both wholesale and retail
purchasers of this brand differs according to the quantities bought
Only five companies have ever bought sufficient quantities of respondents self to obtain the $1.35
per case price
As a result of this low price these five companies have been able to sell blue label salt at retail
cheaper than wholesale purchasers from respondent could reasonably sell the name brand of salt
to independently operated retail stores, many of whom competed with the local outlet of the pipe
chain stores
The record indicates that no single independent retail grocery store, and probably no single
wholesaler, bought as many as 50,000 from the defendent in cases or as much as $50,000 worth
of table salt in one year
The legislative history of the Robinson-Patman act makes it abundantly clear that Congress considered it
to be an evil that a large buyer could secure it a competitive advantage over a small buyer solely because
of the large buyers quantity purchasing ability
The Robinson Patman act was passed to deprive a large buyer of such advantages except to the extent that
a lower price could be justified by reason of a seller's diminished cost due to quantity manufacture,
delivery or sale, or by reason of the seller's good faith effort to meet a competitor’s equally low price
Respondent’s standard quantity discounts are discriminatory within the meaning of the act, and are
prohibited by it whenever they have defined effect on competition
The respondent has the burden of proving that cost savings justified quantity discount differentials
The statute does not require the commission to find that injury has actually resulted. The statute requires
no more than that the effect of the prohibited price discriminations may be substantially to lessen
competition or to injure, destroy, or prevent competition
The commission is authorized by the act to bar discriminatory prices upon the reasonable possibility that
different prices for like goods to competing purchasers may have defined effect on competition
It would greatly handicap effective enforcement of the act to require testimony to show that which we
believe to be self-evident, namely, if there is a reasonable possibility that competition may be adversely
affected by a practice under which manufacturers and producers sell their goods to some customers
substantially cheaper than they sell like goods to the competitors of these customers
Texaco v. Hasbrouck
496 U.S. 543 (1990)
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Texaco so gasoline directly to respondent and several other retailers in Spokane, Washington, at
its retail tank wagon prices while it granted substantial discounts to two distributors
The station supplied by the two distributors increase their sales by dramatically, will respondent
sale suffered a corresponding decline
We granted certiorari to consider Texaco's contention that legitimate functional discounts not violate the
act because a seller is not responsible for its customers independent resale pricing decisions. Where we
agree with the basic thrust of Texaco's argument, we conclude that in this case it is foreclosed by the facts
of the record
The act contains no express reference to functional discounts. It does contain to affirmative defenses that
provide protection for two categories of discounts, those that are justified by savings in the sellers cost of
manufacture, delivery or sale, and those that represent a good faith response to the equally low prices of a
competitor
In order to establish a violation of the act, respondents had the burden of proving four fax: 1) that Texaco
sales to Gull and Dompier were made in interstate commerce; 2) that the gasoline sold to them was of the
same grade and quality is that sold to the respondents; 3) that Texaco discriminated in price as between
Gull and Dompier on the one hand and respondent on the other hand; and 4) that the discrimination had a
prohibited effect on competition
A supplier need not satisfy the rigorous requirements of the cost justification defense in order to prove
that a particular functional discount is reasonable and accordingly did not cause any substantial lessening
of competition between a wholesaler's customers and suppliers direct customers
in this case however, there was no substantial evidence indicating that the discounts to Gull and Dompier
constituted a reasonable reimbursement for the value of Texaco's actual marketing functions
The competitive advantage in that market also constitutes the evidence tending to rebut any presumption
of legality that would otherwise apply to their wholesale sales
Texaco affirmatively encouraged Dompier to expand its retail business and that Texaco was fully
informed about the persistent and market like consequences of its own pricing policies
it is also true that not every functional discount is entitled to a judgment of legitimacy, and Maggie will
sometimes be possible to produce evidence showing that a particular functional discount caused a price
discrimination of the sort the Act prohibits. One such anticompetitive effects approved as we believe they
were in this case they are covered by the Act
Volvo Trucks v. Reeder-Simco GMC
126 S.Ct 860 (2006)
Franchised dealer of heavy-duty trucks brought action against truck manufacturer, alleging unfair price
discrimination under the Robinson-Patman Act (RPA), and a failure to deal in good faith and in a
commercially reasonable manner under the Arkansas Franchise Practices Act (AFPA).
Holdings: The Supreme Court, Justice Ginsburg, held that:
(1) manufacturer could not be liable for secondary-line price discrimination under Robinson-Patman Act,
absent showing it discriminated between dealers contemporaneously competing to resell its product to the
same retail customer, and
(2) dealer failed to establish injury to competition targeted by RPA by selective purchase-to-purchase,
offer-to-purchase, and head-to-head comparisons.
Absent actual competition with favored Volvo dealer, Reeder cannot establish the competitive injury
required under the Act
Reeder failed to show that Volvo discriminated in price between Reeder and another purchaser of Volvo
trucks
Chapter 6: Proving an Agreement or Concerted Action
A. Are the Defendants Separate Entities?
Copperweld Corp. v. Independence Tube Corp.
467 U.S. 752 (1984)
Review of this case close directly into question whether the coordinated acts of a parent and its whollyowned subsidiary can't, in the legal sense contemplated by § 1 of the Sherman Act, constitute a
combination or conspiracy
Because coordination between the Corporation and its division does not represent a sudden joining of two
independent sources of economic power previously pursuing separate interests, it is not an activity that
warrants § 1 scrutiny
For similar reasons, the coordinated activity of a parent and its wholly-owned subsidiary must be viewed
as that of a single enterprise for purposes of § 1 of the Sherman Act
B. Standards for Finding a Vertical Agreement
Monsanto v. Spray-Rite Service Corp.
465 U.S. 752 (1984)
Spray-Rite was a discount operation, buying in large quantities and selling at a low margin. Monsanto
declined to renew Spray-Rite’s distributorship
A manufacturer of course generally has the right to deal, or refuse to deal, with whomever likes, as long
as it does so independently
The fact that a manufacturer and its distributors are in constant communication about prices and
marketing strategy does not alone show that the distributors are not making independent pricing decisions
It is of considerable importance that independent action by manufacturer, and concerted action on
nonprice restrictions, be distinguished from price-fixing agreements, since under present law the latter are
subject per se treatment and treble damages
There must be evidence that tends to exclude the possibility that the manufacturer and non-terminated
distributors were acting independently
Circumstances must reveal a unity of purpose or a common design and understanding, or meeting of
minds in the unlawful agreement
The correct standard is that there must be evidence that tends to exclude the possibility of independent
action by the manufacturer and distributor. That is, there must be direct or circumstantial evidence that
reasonably tends to prove that the manufacturer and others had a conscious commitment to a common
scheme designed to achieve an unlawful object
C. Standards for Finding a Horizontal Agreement or Concerted Action
Theatre Enterprises v. Paramount Film Distributing
346 U.S. 537 (1954)
Petitioner brought this suit alleging that respondent motion picture producers and distributors have
violated the antitrust laws of conspiring toward restrict first-run pictures to downtown Baltimore theaters,
thus confining its suburban theater subsequent runs an unreasonable clearances
Petitioners asserted that simultaneous first runs are normally granted only to non-competing theaters.
Since the Crest is insubstantial competition with the downtown theaters a simultaneous agreement would
be economically unfeasible
Circumstantial evidence of consciously parallel behavior may have made heavy inroads into the
traditional judicial attitude towards conspiracy; but conscious parallelism has not yet read conspiracy out
of the Sherman act entirely
Here each of the respondents had denied the existence of any collaboration and in addition had introduced
evidence of the local conditions surrounding the Crest operation which, they contended, precluded it from
being a successful first-run house
This evidence, together with other testimony of an explanatory nature, race fact issues requiring the trial
judge to submit the issue of conspiracy to the jury
Matsushita Electric v. Zenith Radio
475 U.S. 574 (1986)
American manufacturers of television sets brought suit against Japanese manufacturers alleging that the
Japanese manufacturers had illegally conspired to drive the American manufacturers from the American
market by engaging in a scheme to fix and maintain artificially high prices for television sets sold by the
Japanese manufacturers in Japan and, at the same time, to fix and maintain low prices for the sets
exported to and sold in the United States.
The Supreme Court, Justice Powell, held that: (1) American television manufacturers could not recover
antitrust damages against Japanese television manufacturers for any conspiracy by the Japanese
manufacturers to charge higher than competitive prices in the American market since such conduct could
not injure the American manufacturers who stood to gain from any such conspiracy, and (2) in order to
survive a motion for summary judgment by Japanese manufacturers, American manufacturers were
required to establish a material issue as to whether the Japanese manufacturers entered into an illegal
conspiracy which caused the American manufacturers to suffer cognizable injury; because the factual
context rendered the claims of the American manufacturers implausible, the American manufactures were
required to offer more persuasive evidence to support their claims than would otherwise be necessary.
The evidence must tend to exclude the possibility that petitioners underpriced respondents to compete for
business rather than to implement an economically senseless conspiracy
Petitioners had no rational economic motive to conspire, and if their conduct is consistent with other,
equally plausible explanations, the conduct does not give rise to an inference of conspiracy
Cement Manufacturers Protective Ass’n v. U.S.
268 US 588 (1925)
Cement Manufacturers' Protective Association's gathering and dissemination of information regarding
specific job contracts held not violative of Anti-Trust Law.
The cement Manufacturers Protective Association and its member cement makers collected and
disseminated to each other information about a) whether buyers with requirements contract for specific
jobs were taking more cement than the job required and b) when buyers were delinquent on obligations to
pay for some not
Eastern States Retail Lumber Dealers’ Ass’n v. US
234 U.S. 600 (1914)
The defendants collected information from the retailer members about which wholesalers were competing
with those retailers by selling directly to consumers and circulated the lists of such wholesalers to each
retailer member
When viewed in the light of the history of these associations and the conflict in which they were engaged
to keep the retail trade to themselves and to prevent wholesalers from interfering with what they regarded
as their rights in such trade there can be but one purpose in giving the information in this form to the
members of the retail associations of the names of all wholesalers who by their attempt to invade the
exclusive territory of the retailers, as they regarded, have been guilty of unfair competitive trade
The circulation of such information among hundreds of retailers as to the alleged delinquency of a
wholesaler with one of their number had and was intended to have the natural effect of causing such
retailers to withhold their patronage from the listed wholesalers
Conspiracies are seldom capable of proof by direct testimony and may be inferred from the things
actually done, and when it in this case in concerted action the names of wholesalers were reported as
having made sales to consumers or periodically reported to the other members of the Association, the
conspiracy to accomplish that which was the natural consequence of such action may readily be inferred
American Column & Lumber v. United States
257 U.S. 377 (1921)
The American Hardwood Manufacturers Association hade 400 members, 365 which participated in the
case “open competition plan”
The plan called for each member to give the Association daily reports on the terms of each of its sales,
monthly reports on its output and inventory, and a list of its prices
The plan also provided for monthly meetings to afford opportunity for the discussion of all subjects of
interest to the members
The fact, the conduct that went beyond the plan in that: 1) weekly regional meetings were held; 2) the
weekly sales report included a forecast the future market conditions that ended up being discussed at
practically every meeting; 3) before each meeting members were asked to the output they have last month
an estimated they would have next month, and to state their general view of market conditions
The record shows a persistent purpose to encourage members to unite in pressing for higher and higher
prices, without regard to cost, but there are many admissions by members, that only that this was the
purpose of the plan, but that it was fully realized
Genuine competitors do not make daily, weekly, and monthly reports out of the minutest details of the
business to the rivals, as the defendant's did; they do not contract, as was done here, to submit their books
to the discretionary audit, and their stocks to the discretionary inspection, of the rivals, for the purpose of
successfully competing with them; and they do not submit the details of their business to the analysis of
an expert, jointly employed, and obtain from him a harmonized estimate of the market as it is
American Tobacco v. United States
328 U.S. 781 (1946)
The petitioners are the American Tobacco Company, Liggett & Myers, R.J Reynolds, and others
The petitioner sold and distributed their products to jobbers at selected dealers who bought at list prices
The list prices charged in the discounts allowed by petitioners have been practically identical since 1923
and absolutely identical since 1928
The following record of price changes is circumstantial evidence of the existence of a conspiracy and the
power and intent to exclude competition coming from cheaper grade cigarettes
There was evidence that when dealers received an announcement of the price increase from one of their
competitors and attempted to purchase some of the leading brands of cigarettes from all or petitioners
after unchanged prices before announcement of a similar change, the latter refused to fill such orders until
the prices were also raise, thus bringing about the same result as if the changes had been precisely
simultaneous
X done to give effect to the conspiracy may be in themselves wholly innocent acts. Yet, if they are part of
the some of the acts which are relied upon to effectuate the conspiracy which the statute forbids, they
come within its prohibition
Where the circumstances are such as to warrant a jury in finding that the conspiratorial had a unity of
purpose or a, design and understanding, or a meeting of the minds in an unlawful arrangement, the
conclusion that a conspiracy is established as justified
Interstate Circuit v. United States
306 U.S. 208 (1939)
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The distributor appellants are engaged in the business of distributing in interstate commerce
motion picture films, copyrights and which they own or control, for exhibition in theaters
throughout the United States
The head of Interstate and Texas Consolidated sent a letter to the seven other distributors
demanding set prices
There is no response from this letter but shortly after there is evidence that all of the distributors
met the prices
In the face of this action and similar unanimity with respect to other features of the proposals, and the
strong motive for such unanimity of action, we decline to speculate whether there may have been other
and more legitimate reasons for such action not disclosed by the record, but which, if they existed, were
known to the appellants
The failure under the circumstances to call as witnesses those officers who did have the authority to act
for the distributors and who were in a position to know whether they had acted in pursuance of agreement
is itself persuasive that the testimony, if given, would have been unfavorable to the appellants
Acceptance by competitors, without previous agreement, of an invitation to participate in a plan, the
necessary consequence of which, if carried out, is restraint of interstate commerce, is sufficient to
establish an unlawful conspiracy under the Sherman Act
Maple Flooring Manufacturers Assn. v. United States
268 US 563 (1925)
We decide only that trade associations or combinations of persons or corporations which openly and
fairly gather and disseminate information as to the cost of the product, the volume of production, the
actual price which the product has brought in past transactions, stocks of merchandise on hand,
approximate cost of transportation from the principal point of shipment to the point of consumption, as
did these defendants, and who, as they did, meet and discuss such information and statistics without
however reaching or attempting to reach any agreement or any concerted action with respect prices will
production or restraining competition, do not thereby engage in unlawful restraint of commerce
It was not the purpose or intent of the Sherman antitrust law to inhibit the intelligent conduct of business
operations, nor do we concede that it's purposes was to suppress such influences as might affect the
operations of interstate commerce to the application to them of the individual intelligence of those
engaged in commerce, enlightened by accurate information as to the essential elements of economics of a
trade or business, however gathered or disseminated
The evidence here failed to establish such uniformity in prices and was not seriously urge before this
court that any substantial uniformity in price had in fact resulted from the activities of the Association,
although it was conceded by defendants that the dissemination of information as to cost of the product
and as to production and prices would tend to bring about uniformity and prices through the operation of
economic law
The defendants offered a great volume of evidence tending to show that the trend of prices of the product
of the defendants corresponded to the law of supply and demand and that it evidenced no abnormality
when compared with the price of commodities generally
United States v. Container Corp.
393 U.S. 333 (1969)


Container manufacturers exchanged information concerning specific sales to identify customers,
not a statistical report on the average cost all members, without identifying the parties to specific
transactions
There was of course freedom to withdraw from the agreement. But the fact remains that when a
defendant requested and received price information. It was a firm and its willingness to furnish
such information in return
The result of this reciprocal exchange of prices was to stabilize prices though at a downward level.
Knowledge of a competitor's price usually meant matching a price
The limitation or reduction of price competition brings the case within the ban, for as we held in Socony
the interference with the setting up price by the free market forces is unlawful per se
United States v. United States Gypsum
438 U.S. 422 (1978)
Good-faith belief, rather than absolute certainty, that price concession is being offered to meet equally
low price offered by competitor is sufficient to satisfy meeting-competition defense contained in
Robinson-Patman Act.
Efforts to corroborate the reported discount by seeking documentarian evidence were praising its
reasonableness in terms of available market data would also be obeyed and as would sellers past
experience with a that particular buyer question
Section 2A of the Clayton act, embodies a general prohibition of price discrimination between buyers
when an injury to competition is the consequence. The primary exception to this section to a bar is the
meeting competition defense which is incorporated as a proviso to the burden of proof requirements set
out
Section 2B does not require the seller to justify price discriminations by showing that in fact they met a
competitor's price. But it does place on the seller the burden of showing that the price was made in good
faith to meet a competitor's
The good faith standard remains the benchmark against which the seller's conduct is to be evaluated, and
we agree with the government and the FTC that this standard can be satisfied by efforts falling short of
intersellar verification in most circumstances where the seller has only vague, generalized doubts about
the reliability of its commercial adversary the buyer
FTC v. Cement Institute
333 US 683 (1948)
The fact that members of Federal Trade Commission in prior study of multiple basing point system for
price-fixing had determined that it was equivalent of a price-fixing restraint of trade in violation of
Sherman Act did not disqualify commission from determining proceedings against cement companies
based on charge that use of such price-fixing formula constituted unfair competition.
Evidence showing that in connection with use of multiple basing point delivered price system by cement
producers cement had been sold for many years, with few exceptions, in every given locality at identical
prices and terms by all producers, and that action was taken by industry against any producers who
deviated from established prices, sustained finding that cement producers had collectively maintained a
multiple basing point delivered price system to suppress competition in cement sales.
Notes
8/19/10
Topics
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Antitrust
Acquisitions and Maintain of Market Power
Collusion/ Collaboration Among Competitors
Mergers
Vertical Relationships
IP Issues
Broad Norms
Complex Realities
Federal and State Laws
Structure of the Federal System
-Sherman Act (1890)
 §1 Condemns anticompetitive agreements and bans certain agreements
§ 1. Trusts, etc., in restraint of trade illegal; penalty
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or
commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person
who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal
shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $
100,000,000 if a corporation, or, if any other person, $ 1,000,000, or by imprisonment not exceeding 10
years, or by both said punishments, in the discretion of the court.

§2 Imposes restrictions on particular forms of unilateral conduct that monopolizes or attempts to
monopolize markets
15 USCS § 2
§ 2. Monopolization; penalty
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the trade or commerce among the several States, or with
foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine
not exceeding $ 100,000,000 if a corporation, or, if any other person, $ 1,000,000, or by imprisonment not
exceeding 10 years, or by both said punishments, in the discretion of the court.
Implication of Violations
 Criminal felonies prosecuted by DOJ 5% of cases
 Injunctions procured by DOJ
 Injunctions, treble damages, and attorneys’ fees in private litigation 95% of cases
Treble Damages: 3x actual damages
Criminal Penalties are for §1 violations
Immunities, Exemptions, and Limitations
 The Noer-Penninton Act: Collaboration through lobbying
 State Immunities
 Agriculture Cooperatives
 Baseball (Judicial Immunization)
 Sports Leagues (American Needle v. NFL) Sports leagues no longer immune
 Operating Agreements of Newspapers (The Newspaper Preservative Act of 1970)
 Insurance Industry (The McCarran-Ferguson Act)
Values and Lawyering
 Until the late 1970s antitrust law was overly ambitious reflecting a wide range of sentiments and
values
 Chicago School of Economics greatly contributed to analytical thinking but also contributed
many simplistic working premises
 Starting in the mid-1980s the antitrust practice has been gradually progressing and becoming
more nuanced and sophisticated
 The major impediment to progress: Old legal precedent
Consumer Welfare, Consumer Injury
 With a few exceptions or per se violations, the plaintiff or government must show injury to the
consumer
 Robert Bork: The Antitrust Paradox
 Historically, many liberals and conservatives undertook the “consumer welfare” standard
 Liberal because of the concern for consumers
 Conservatives because of intellectual victory for Bork
Economic theory and legislation history does not support consumer welfare
Difficult to identify the “consumer”
The antitrust methodology doesn’t accommodate welfare analysis
8/24/10
Consumer, Society, Competition
Sherman Act §1
The Agreement Requirement: Must be some sort of contract implied or express
Interstate Commerce Requirement: Every business affects interstate commerce: non-issue
In Restraint of Trade: Anticompetitive effects are greater than their procompetitive effects
A key distinction
-Per se restraints of trade: illegal on their face
-Rule of Reason restraints in trade: Court evaluations of the procompetitive effects v. anticompetitive
effects
Standard Oil v. U.S. (1911)
Per se illegal: price fixing, market divisions, output restraints, and boycotts
U.S. v. Trenton (1927)
Uniform price fixing by those controlling in any substantial manner a trade or business in interstate
commerce is prohibited by the Sherman Law, despite the reasonableness of the particular prices agreed
upon
8/26/10
BMI v CBS (1979)
Does the issuance of blanket licenses to copyrights works at negotiated fees constitute price fixing that is
a per se violation of antitrust laws?
Trial Court: The arrangement is not a per se violation of the Sherman Act because individual copyright
owners can still negotiate licensing agreements
Court of Appeals: Illegal per se
The Supreme Court
 The approach of the Court of Appeals was overly literal
 “Literalness is overly simplistic and often overbroad”
 Courts classify business practices as illegal per se only after acquiring considerable experience
and finding that they are plainly anticompetitive and are unlikely to have any redeeming virtue
 But the court has never examined blanket licenses
 It is not about the structure of the agreement, it is whether there is an agreement on prices
 Blanket licenses are not naked restraints of trade with no purpose except stifling of competition,
rather they enhance market efficiency
Holding: A restraint ancillary to a productive collaboration among competitors may be lawful under
antitrust laws
Conceptual Difficulty: We said that, for the purpose of per se violation, reasonableness of the restraint
doesn’t matter
Arizona v. Maricopa County Medical Society (1982)
The scheme: The local trade association issued maximum fees member physicians were allowed to charge
insurers
Market share: 70% of the practitioners in Maricopa County
The legal Question: Is the scheme illegal per se or should it be evaluated under RoR?
Holding: The fee schedules are per se illegal
Q1: Whose interests were compromised?
Insurers, consumers, other doctors
Q2: Are fixed maximum prices worse than fixed minimum process? Depends on the context
Q3: What’s the difference between the physicians in Maricopa County Medical Society and the musicians
in BMI? No price-fixing in BMI
Texaco v. Dagher (2006)
Taxaco and Shell formed a joint-venture (Equilon) to refine and sell gasoline in the Western US
The JV resulted in uniform prices. Was it a per se violation of §1?
Approved by the FTC and relevant
Justice Thomas:
 When partners set the price of their goods or services they are literally price fixing, but are not
per se in violation of the Sherman Act.
 If Equilon was selling its gasoline under a single brand, we would have had a single entity. The
marketing decisions that creates two entities should make no difference
8/31/10
3. Horizontal Output Restrictions
De Beers
OPEC
NCAA v. Board of Regents of U. of Oklahoma (1984)
NCAA: An association of colleges
NCAA negotiated for the colleges licensing arrangements with CBS and ABC for college games
NCAA set certain rules
 No more than six televised game per individual school (four nationally)
 Each network will televise 82 colleges over two-years
The challenged practices constitute a restraint of trade in the sense that they limit the freedom to negotiate
But every contract is a restraint of trade
NCAA members are competitors. NCAA’s practices restrict competition among competitors
Specifically, NCAA placed an artificial limit on quantity
However, in this case, “we have decided that it would be inappropriate to apply a per se rule”
The NCAA and its members institution market is competition itself
A myriad of rules affecting such matter as the size of the field, the number of players on a team, and the
extent to which physical violence or proscribed
NCAA imposes restriction on prices and output that raise anticompetitive concerns
Individual competitors lose their freedom to compete
NCAA’s restrictions are unresponsive to consumer preferences
Congress designed the Sherman Act as a consumer welfare prescription
A restraint that intervenes in consumer preferences is inconsistent with the fundamental goal of antitrust
law
4. Horizontal market Divisions
Palmer v. BRG (1990)
Guidelines for Collaborations Among Competitors
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Collaborations other than mergers
Collaborations may have procompetitive benefits
Safety Zones: Absent extraordinary circumstances, the agencies to not challenge a competitors’
collaboration when the combined market shared of the participants accounts for no more than
20% of each relevant market. However, safety zones do not apply to per se agreements
Horizontal Agreements Not to Deal
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Certain forms of collaboration among competitors are illegal
Horizontal agreements not to deal promote less collaboration among competitors
A business can enter an agreement with another on their own terms, but the businesses cannot enter into
an agreement about the terms of a third business
9/2/10
Fashion Originators’ Guild of America v. FTC
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Design copying is unethical and immoral. Design piracy
Under US IP law, fashion design is not protected
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Design copying is an unfair trade practice that constitutes a tortious invasion of rights
Is copying necessarily bad for fashion designers?
-no
I fostering (or protecting) creativity an “unfair method of competition” under §5 of the FTC Act?
Court’s decision
 Exclusion of Competition
 Copying was legal under federal law
US v. Terminal Railroad
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Terminal Railroad association owned by 14 railroad companies to control the St. Louis railroad
bridges
24 railroad companies in Missouri
Not necessarily uncompetitive
Not dissolved if it agreed to the Court’s terms
Associated Press v. US (1945)
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Not a necessity to be in AP in order to operate like in TRRA
Not a coalition of business like in TRRA, AP is a creative product that could do some good
9/7/10
Northwest Wholesale Stationers v. Pacific Stationary
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Business dispute that the Court rules as an antitrust case and requires a rule of reason analysis
Procedural safeguards do not matter in antitrust cases
Not a group boycott
National Society of Professional Engineers v. US
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Requested remedy: To nullify a trade association’s cannon of ethics prohibiting competitive
bidding by its members
No requirement in the Sherman Act to do competitive bidding, just a requirement not to not
compete
But no price competition is per se illegal
“Price is the central nervous system of the economy”
An agreement to prevent prices from going down
The statute doesn’t really matter, it is how courts apply the situation to the economics of the
circumstances
Goldfarb v. Virginia State Bar (1978)
 Prohibited customary practice of bars to set minimum legal fees
Per se: Is it price-fixing? Is it boycott? Is it market allocation?
FTC v. Indiana Federation of Dentists
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Members of IFD didn’t submit x-rays to insurers, believing that the review process of insurers to
cut costs needed for good services
FTC: IFD’s policy was an unfair method of competition under §5 of the FTC ACT because it
amounted to an unreasonable conspiracy in restraint of trade
The policy resembles a “group boycott” but court says not illegal per se
Orbach says no boycott
IFD’s justifications: No specific finding about the market, no finding with respect to impact
about prices, x-rays and quality of care
Supreme Court says you decided together how not to compete by refusing to give insurers
information
FTC v. Superior Court Trial Lawyers
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SCTLA failed to convince DC to raise the rates of the CJA regulars
CJA regulars decided to stop taking cases unless their rates were raised and publicized the
boycott
DC was unable to find other lawyers, concluded that the criminal justice system was on the brink
of collapse, and raised the rates
FTC concluded that the CJA regulars violated antitrust laws, and enjoined future boycotts. The
Court of Appeals held that the First Amendment protected the regulars
Supreme Court
 Social justification don’t cure antitrust violations
 Courts apply antitrust law the special sensitivity to the First Amendment
 Every refusal to deal has an expressive component
9/9/10
California Dental Ass’n v. FTC
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Ban on advertising quality and services and abstract references to prices
The FTC concluded that the CDA’s position constituted an agreement to restrain advertising of
quality and prices in violation of §5
Removes competition in price and quality
The Supreme Court
 Majority: CDA’s position has pro- and anti- competitive effects. The position calls for a full
consideration of the issue
 Dissent: CDA’s position prohibits truthful and nondeceptive adverting, such as low and
affordable rates. This position is anticompetitive
U.S. v. Brown University
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The Ivy league Schools agreed to award financial aid only on the basis of demonstrated financial
need
Agreed: no merit based aid
Resolved: participants shared financial information concerning admitted candidates
Unsuccessful Attempt: Recruiting Stanford
Is it an agreement about commerce or charity?
Commerce
IP Justifications
US v. GE (1926)
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Westinghouse produced and sold light bulbs with licenses from GE. GE fixed the terms and
priced of the sale
Could the patentee impose constraints in the license?
Yes the licensor can impose restrictions including price fixing
US v. New Wrinkle
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6 defendants that fixed minimum prices
Defendants conspired to fix uniform prices and eliminate competition throughout the wrinkle
finish industry
All the companies pooled their patents together, so that they could enforce their cartel
An industry-wide license agreements, entered into with knowledge on the part of licensor and licensees of
the adherence of others, with the control over prices and methods of distribution, established a prima facie
case of conspiracy
9/14/10
Patent pooling: A group of firms pool their patents, cross license their technologies to collaborate
DOJ/FTC Guidelines for the Licensing of IP (1995)
General Idea: The market for innovation is like any market
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IP laws and antitrust laws share the common purpose of promoting innovation and enhancing
consumer welfare
Standard antitrust analysis applies to IP
No presumption about IP rights and market power
If someone has IP rights, the FTC will not presume that the holder has market power
Licensing may be procompetitive
Per SE Treatment: Licensing that does not enhance efficiency or reduce transaction costs.
Otherwise Rule of Reason
Buyer Cartels
Mandeville Island Farms v. American Crystal Sugar (1948)
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Sugar beets have to be processed very quickly so they have to be refined in a certain geographic
market
3 buyer they agreed to buy at a low cost
Buyers fixed prices using a formula that was related to their average profits
Interstate commerce argument
Per se price fixing
Unilateral Conduct
15 USCS § 2
§ 2. Monopolization; penalty
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the trade or commerce among the several States, or with
foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine
not exceeding $ 100,000,000 if a corporation, or, if any other person, $ 1,000,000, or by imprisonment not
exceeding 10 years, or by both said punishments, in the discretion of the court.
It is legal to be a monopoly, it is illegal to monopolize
Elements of Monopolization
 Possession of market power in the relevant market
 The willful acquisition of maintenance of the market power as distinguished from the growth and
development as a consequence of a superior product, business acumen, or historic accident (U.S.
v. Grinnell (1996))
 Firms run into trouble when they exclude competition
 Monopolization: Acquisition or maintenance of market power through exclusion of competition
Robinson-Patman Act
It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly
or indirectly, to discriminate in price between different purchasers of commodities of like grade and
quality, where either or any of the purchases involved in such discrimination are in commerce, where
such commodities are sold for use, consumption, or resale within the United States or any Territory
thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the
United States, and where the effect of such discrimination may be substantially to lessen competition or
tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any
person who either grants or knowingly receives the benefit of such discrimination, or with customers of
either of them
Price discrimination is conduct that only firms with market power can engage in
The Power Element
What is market power?
 In a competitive market, no firm has the power to influence prices
 In other word: In a competitive market, firms are price takers
 A firm with market power can influence prices
The SSNIP Test (Merger Guidelines):
Can a firm impose at least a small but significant and nontransitory (for some time) increase or decrease
in price on at least one product in the market
Market Power and Demand Elasticity
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Quality
Durability
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Variety
Price
Quantity
The Legal Test: The power to control prices or to exclude competition
U.S. v. E.I. Du Pont & Co. (1956)
 Cellophane (75%); Flexible packaging materials (<20%)
The Cellophane Fallacy: At the prevailing (monopolistic) prices, there appeared to be high cross-elasticity
to be high cross-elasticity of demand between cellophane and other packaging materials
9/16/10
Consumer preferences do not have effect on a market analysis
Eastman Kodak v. Image Technical Services (1992)
The direct market is for photocopiers the aftermarket is for service on Kodak machines
The ISOs were in business originally because Kodak originally allowed third parties to service the
products
Kodak limited the amount of parts to third parties
The issue is that they changed their contracts to limit the third parties, that was the unilateral conduct
The fixed-sum market power hypothesis: A monopolist cannot leverage market power through tying. If a
monopolist has market power, it exercises it in the original market and can’t squeeze more from the
consumer
Majority: consumers have limited information about the aftermarket, so the switch squeezed consumers
even more
Once consumers are locked in (regardless of the first market) the manufacturer cannot switch policy to
monopolize the aftermarket
Predatory Pricing
The Intuition:
Definition: A short-term pricing strategy that intends to discipline or eliminate competitors through
unprofitable price levels
9/21/10
Brooke Group v. Brown & Williamson Tobacco Corp. (1993)
A concentrated industry dominated by six firms: Philip Morris (28%); RJ Reynolds (40%); Brown &
Williamson (12%)
Ligget (2-3%)
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Liggett introduced a cheap cigarette. BW responded by introducing its own inexpensive
cigarettes
Ligget argued that BW’s response violated the Robinson-Patman Act, constituted predatory
pricing, and was designed to pressure Liggett to raise its prices
Low prices benefit consumers regardless of how these prices are set, and so long as they are
above predatory levels, they do not threaten competition
The question is whether the price is set below cost
Cost is the average operating cost divided by output
Predation isn’t plausible in general, but more feasible in an oligopolistic market than in a
monopolistic market
Pricing is predatory if 1) it disciplines or eliminates a competitor, 2) the price is below “an appropriate
measure of cost,” and 3) recoupment is likely, the predator is likely to recover losses in the long run
The Supreme Court: Although unsuccessful predatory pricing may encourage some inefficient
substitution toward the product being sold at less than its costs, unsuccessful predation is in general a
boon to consumers
U.S. v. AMR Corp. (10th Cir. 2003)
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The system that facilitated the challenged pricing practice: The hub-and-spoke system
AA engaged in price predation in “four city-pair airline markets, with the ultimate purpose of
using the reputation for predatory pricing…to defend a monopoly at its DFW hub.”
Why did the government fail to prove that AA engaged in predatory pricing?
-Too hard
Price Discrimination
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Price Differentiation: Sell different products at different prices
Price Discrimination
- First degree (willingness to pay) legal
- Second degree (quantity discount) legal
- Third degree (discrimination among identifiable groups) grey zone
Unilateral Refusal to Deal
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Although cooperation among competitors could be procompetitive, it raises many traditional
antitrust concerns
Should a firm with market power have a duty to cooperate with competitors?
Courts consider certain forms of refusal to deal as “improper exclusion”
9/23/10
Third Degree Price Discrimination
Starbucks: Today responded to the recent dramatic increase in the price of green Arabica coffee, currently
close to a 13-year high, as well as significant volatility in the price of other key raw ingredients, including
dairy, sugar and cocoa
The company announced that while it has no plans to raise prices of beverages or packaged coffee sold in
Starbucks US or international stores across-the-board, it does not plan to implement targeted price
adjustments on certain beverages in certain markets
As part of the plan, Starbucks expects to maintain or lower the price of some of its most popular
beverages, including certain espresso beverages; and, in most markets, its popular $1.50 tall brewed
coffee; and to raise prices of labor-intensive and larger-sized beverages
Otter Tail Power Co. v. US (1973)
 Retail distribution of power in 465 towns in MN, ND, and SD
The Essential Facility Doctrine: There is a certain facility or infrastructure that without access competitors
cannot compete
There may be a duty for the owner of the Essential Facility to allow competitors to use the system
Used in the Federal Circuits, Supreme Court does not like it
Natural Monopoly: only one firm can exist in the market
Aspen Skiing Co v. Aspen Highlands Skiing Co. (1985)
 Aspen Skiing was not motivated by efficiency concerns and it was willing to sacrifice short-run
benefits and consumer goodwill in exchange for a perceived long-run impact on its smaller rival
Eastman Kodak v. Image Technical Services (1992)

Duty to cooperate comes from the original relationship between Kodak and the ISOs
Verizon Communication v. Trinko (2004)
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Natural monopoly: the land line
In 1996 Congress forced the LECs to carry other telephone providers over their lines:
Interconnection Agreements
Complaint alleged that Verizon set is prices for carrying other providers so high that nobody
wanted to enter into interconnection agreement with it
Price Squeeze
Refusals to deal are legal in this situation
Concord v. Boston Edison (1st Cir. 1990)
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9/28/10
A firm with market power in two markets
The firm vertically integrates operation of the markets and charges high prices in the first market
According to Judge Learned hand in Alcoa, price squeeze violates § 2 the Sherman Act when the
price in the first market is “higher than fair price”
Pacific Bell Telephone v. Linkline (2009)
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Price squeeze case
AT&T and its affiliates dominate the California market for wholesale DSL services. It also sells
retail DSL services directly to customers
DSL providers that purchased capacity from At&t and affiliates argued that price squeezes
violated §2
The Supreme Court held: no violation
No price squeeze antitrust claim
Weyerhaeuser v. Ross-Simmons Hardwood Lumber (2007)

Test which applied to claims of predatory pricing also applied to claims of predatory bidding, so
that a plaintiff in a claim of predatory-bidding under § 2 of the Sherman Act must prove that
predatory bidding led to below-cost pricing of predator's outputs and that predator had dangerous
probability of recouping losses incurred in bidding up input prices through exercise of
monopsony power; both claims involved deliberate use of unilateral pricing measures for
anticompetitive purposes and both claims required predator to incur short-term losses on chance
they might reap supracompetitive profits in future. Sherman Act, § 2, 15 U.S.C.A. § 2.
Lorain Journal v. United States (1951)
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Concern for the advertisers
Attempted monopolization
US v. American Airlines (5th Cir. 1984)
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CEO of American Airlines Robert Crandall proposed to Braniff to bilaterally raise prices
Attempted monopolization
Under certain conditions an attempt to conspire is an attempted monopolization
Spectrum Sport v. McQuillan (1993)
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One manufacturer with multiple distributors decides to use only one
A producer can decide how to distribute its product, no harm
Antitrust Review
Instrumental Goal: Consumer welfare. Antitrust laws supposedly identify consumer injuries of certain
kind and address them. However, judicial experience and other administrative reasons have created
certain rigid rules: per se illegality
Horizontal Arrangements: Sherman Acts 1 and 2 and FTC Act 5
Per se illegal agreements: price fixing, market divisions, output restraints, and boycotts
No excuse could justify conduct that is per se illegal (National Society of Professional Engineers,
Superior Court Trial Lawyers Ass’n, Brown University) Consider BMI and price fixing
BMI is the only exception, only potential justification to get around the per se rule
Business practices have many purposes and often the dispute is about the interpretation of the purpose
(e.g., NCAA, Taxaco, BRG, Klor’s, FOGA)
Collusion may be in any dimension, not necessarily in price (FOGA, Klor’s, BRG, Indian Federation of
Dentists, CA Dental Ass’n)
Courts tend to understand arrangements related to competition or to competitors (BRG, Klor’s, Terminal
RR Ass’n, AP)
IP rights tend to confuse layers and courts. An IP right confers the power to exclude. In the past, courts
referred to IP rights as statutory monopolies
Like other contracts, licensing schemes offer many creative opportunities for business. What a business
consultant may consider a “competitive advantage,” an antitrust expert may consider an anticompetitive
practice

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GE – restriction in licensing = legal
Patent pools (New Wrinkle) = illegal
Unilateral Conduct
Sherman Act § 2
It is legal to be a monopoly, it is illegal to monopolize
Possession of market power, combined with the acquisition and maintenance of market power as
distinguished from growth or development as a consequence of a superior product, business acumen, or
historic accident (US v. Grimmil)
Analysis of market power must start with market definition: what products do the consumers consider as
substitutes and who offers them? (E.I du Pont, Eastman Kodak)
Does one firm or a group of firm have the ability to influence prices in this market?
Analytical Framework: The 2010 Merger Guidelines
How can a firm with market power exclude competition?
 Predatory pricing-hard to prove
 Price discrimination-hard to prove
 Refusal to deal-limited, usually must include a prior agreement
 Price squeezes-legal
 Predatory bidding-Predatory pricing
10/5/10
Vertical Agreements
Agreements between upstream and downstream firms, with the purpose to suppress competition
The question is if prices are going to go up because of the anticompetitive practice
15 USCS § 14
§ 14. Sale, etc., on agreement not to use goods of competitor
It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or
make a sale or contract for sale of goods, wares, merchandise, machinery, supplies or other commodities,
whether patented or unpatented, for use, consumption or resale within the United States or any Territory
thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the
United States, or fix a price charged therefor, or discount from, or rebate upon, such price, on the
condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the
goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of
the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement
or understanding may be to substantially lessen competition or tend to create a monopoly in any line of
commerce.
Exclusive Dealing
Definition: The upstream (downstream) firm deals with the downstream (upstream) firm, so long as the
downstream (upstream) firm does not engage in business with any other upstream (downstream) firm
Is market foreclosure possible?
Raising Rival’s Costs (RRC) can be translated to higher consumer prices which cause consumer injury
United States v. Griffith (1948)
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Substantial growth over five years form 37 towns to 85
Griffith leveraged its market power in closed towns to obtain exclusive licenses for first-run
movies in open towns
Unclear how this could affect consumer prices, but fewer choices is also a consumer injury
Holding: If a person uses a strategic position to acquire exclusive privileges in a market where he has
competitors, he is employing his monopoly power as a trade weapon against his competitors
The consequence of such a use of monopoly power is that films are licensed on a non-competitive basis in
what would otherwise be competitive situations
This is abuse of buying power
Standard Fashion v. Magrane-Houston (1922)
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An exclusive-dealing agreement in which the retailer receives a substantial discount (50%) for
exclusive dealing
The retailer argued that the agreement was unenforceable because it violated Section 3 of the
Clayton Act
The large discount really upset the Court
10/7/10
Standard Oil and Standard Stations v. US (1949)
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The market: Service gasoline stations
Standard Oil integrates its own service stations (23%) of gas in the western us
Six leading companies sell 42% of gas in the market
Remaining retail sales are divided among more than 70 firms
Standard oil had exclusive agreements with the small firms
Foreclosing competitors from a substantial market = substantially lessening competition
The standard economic justifications for exclusive contracts: protection of goodwill, transaction costs
Standard Oil violated §3 of the Clayton Act
FTC v. Motion Picture Advertising Service (1953)
Tampa v. Nashville (1961)
Analysis of the market shows the market is not affected at all
US v. Microsoft (2001)
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The monopolization of the Intel-compatible PC operating systems
Middleware: Interface between an operating system and API (Application Programming
Interfaces)
Microsoft chose to kill the market of middleware so that application makers could only work with
them
A mess
Tying
Definition: a refusal to transact unless the party to the transaction is willing to enter into another
transaction
Judicial test:
1. Separate tying and tied products
2. Evidence of coercion
3. Market power in the market for the tying product
4. Anticompetitive effects in the market for the tied product
5. Effect on interstate commerce
12/10/10
Gillette
Tying product the razor, tied the blade
Tying concerns
 Excluding competition in the tied market
 Excluding competition in the tying market
 Through RRC: entry is required in two markets
When buyers don’t use the tied product in a fixed proportion tying may be used for price discrimination
A means of price discrimination that is unlikely to exclude competition
Price discrimination and metering
Heavy users of a Xerox copier will pay more than light users if paper is tied to the machine
Lease the machine instead of selling the machine so that you have a contract between the papers
Increase the maintenance cost if the paper is generic
Squeezing Consumers
Could a seller with market power squeeze more from a buyer through tying?
Eastman Kodak v. Image technical Services (1992)
Pricing replacement parts
United Shoe Machinery v. US (1922)
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Shoe machinery 95% of the market
The S.Ct: Whether this finding is precisely correct is immaterial to inquire
USM furnished machines of excellent quality, rendered valuable services in the installation of the
machines, instructions to operators, and outstanding repair and maintenance services
 USM did not act oppressively in enforcing its contracts
-Shoemakers could USM machines only with shoes that were exclusively produced with USM machines
-Shoemakers should purchase supplies only from USM: Metering
-Lower fees to shoemakers who use only USM machines: Loyalty Discounts
-Fees related to output of shoes: Metering, Price Discrimination
-Termination clauses for violations of any requirement
Illegal tying
International Salt v. US (1947)
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Machines to dissolve rock salt into brine
Machines to inject salt into canned products during the canning process
Salt rocks
Salt tablets
ISC’s allegedly had a higher level of sodium chloride in its salt than its competitors
Market share for salt was 2-4%
Market share for machines was significant
The Lease Terms:
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Lessees must purchase salt rocks and tablets only from ISC
Lowest price guaranteed for the salt
ISC’s patents confer no right to restrain use of, or trade in, unpatented salt. By contracting to close this
market for salt against competition, International has engaged in a restraint of trade for which its patent
afford no immunity from the antitrust laws
8/19/10
Illinois Tool Works v. Independent Ink (2006)
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A subsidiary of ITW sold printing systems and require OEMs to acquire ink exclusively for ITW
Congress, the antitrust enforcement agencies, and most economists have all reached the
conclusion that a patent does not necessarily confer market power upon the patentee. Today, we
reach the same conclusion
United States v. Paramount Pictures (1948)
Break the studio-theater ownership
There is a DOJ division for the motion picture industry
Loyalty and Bundled Discounts
Loyalty discounts
 Discounts or other favorable terms offered to loyal buyers
 What is a loyal buyer?
-A buyer who buys all or some high percentage of her requirements from the seller
-How is it different from “frequent flyer”? No need to be loyal to AA
 Do loyalty discounts result in lower prices? Probably not
Bundled Discounts
 Discounts or other favorable terms offered to buyers who are willing to buy more than one
product
 Is it tying? Not classic tying because you are not forced
 Do bundled discounts result in lower prices?
United States v. Lowes (1962)
 If you want BestInShow, you must book CrappyFilm as well
 Not allowed to block book
 Each film must be sold separately
FTC v. Brown Shoe (1962)
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Brown Shoe is widely regarded as one of the worst antitrust decisions of the Supreme Court
The Issue: A franchise agreement – The Brown Franchise Stores Program
Independent retailers must buy shoes from Brown
In return, retailers received “valuable benefits”
Brown was the second largest shoe manufacturer in the country
Holding: FTC can condemn exclusionary practice without proof of market share that was foreclosed
LePage’s v. 3M (3d Cir. 2003)
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Early 1990’s: 3M had a monopoly on the the US transparent tape (90%)
1992: LePage’s provided 88% of the cheaper, private label tape which represented a small portion
of the market
3M
3M’s position:
 It is not unlawful to lower one’s prices so long as they remain above cost
 Customers’ want to have single invoices and single shipments
Holding
 3M used its market power over transparent tape, and considerable catalog of products, to entrench
its monopoly through bundled rebates and exclusive contracts to the detriment of LePage’s, its
only serious competitor, in violation of §2 of the Sherman Act
Cascade Health Solutions
 The LePage decision (1) protected an inefficient competitor, 2) severely punished 3M for
engaging in above-cost, discount pricing coupled with some exclusive retail contracts (which did
not clearly harm competition or consumers), and 3) offered no guidance for determining
permissible behavior
 Bundled discounts are not necessarily exclusive
10/21/10
Vertical distribution relationships
Could be between manufacturers and retailers, or distributors and retailers
Interbrand v. Intrabrand Competition
Intraband is competition among retailers of the same brand
How can manufacturers restrain intraband competition?
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Resale price maintenance
Geographic restrictions
Advertising restrictions
Add-on restrictions
Other non-price restrictions
Vertical Nonprice Restraints on distribution
General Definition: Contractual Arrangements that limit the competition among retailers of a particular
manufacturer (brand)
Are we likely to observe such practices for non-branded goods? No
Are nonprice restraints equivalent to exclusive dealing? No, exclusive dealing means the retailer can only
sell your product, non-price restrictions do not place the same restraints
Who is likely to initiate the practice? The manufacturer? The retailer? Both, particularly powerful
retailers
Continental T.V. v. GTE Sylvania (1977)
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Geographic restrictions on franchisees to eliminate competition among Sylvania retailers
Responding to a decline in sales by reshaping its marketing strategy through relying on a small
number of retailers who are aggressive and competent
Very small market share for televisions
The market share went up from 1-2% to 5% as a result of the plan
Issue: Is intrabrand competition like interbrand competition for purposes of the per se rule?
Intrabrand competition is not the same as interbrand competition and the rule of reason should be applied
Resale Price Maintenance
Regardless of the legal regime, brands have always used RPM
Minimum RPM: Not allowed to sell below this price
Maximum RPM: Not allowed to sell above this price
RPM: You are going to sell at this price
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Collusion
-Manufacturer collusion
-retail collusion
-the powerful retailer
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The Free-Riding Theory: incompetent retailer and competent retailer
Demand Uncertainty:
The Image Theory: increase prices to bump up the brand
Leegin Creative Leather Products v. PSKS (2007)
Holdings: The United States Supreme Court, Justice Kennedy, held that:
 (1) application of per se rule is unwarranted as to vertical agreements to fix minimum resale
prices, overruling Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376,
55 L.Ed. 502;
 (2) administrative convenience of per se rule cannot justify its application to vertical resale price
maintenance agreements;
 (3) alleged higher prices caused by vertical minimum-resale-price agreements did not justify
application of per se rule; and
 (4) stare decisis did not compel continued application of per se rule to vertical resale price
maintenance agreements.
Now RPM is viewed under the rule of reason
NYNEX v. Discon (1998)
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10/28/10
Price Discrimination
Robinson-Patman Act
Price differentiation: Different prices for different products
Price discrimination:
 First degree (willingness to pay)
 Second degree (quantity discounts)
 Third degree (discrimination among identifiable groups)
FTC v. Morton Salt
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Morton sold its Blue Label to wholesalers and retailers with a price scheme that was
advantageous to large wholesalers (a standard quantity discount)
Defendant: Salt was not a significant component for any grocery store to cause competition injury
Supreme Court: dismissed the argument, holding that the discrimination doesn’t need to harm
competition but may have such an effect
Significance of the Decision: Illegality of price discrimination may be established when price
differences (but no cost) are established
Defendant must show cost differences that correlate with the price differences
Texaco v. Hasbrouck
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Texaco gave discounts to two big customers who wholesaled and retailed
Functional discounts: Discounts based on what the customer does for the seller
Functional discounts are ok as long as they do not cause substantial harm to competition
Volvo Trucks N.A. v. Reeder-Simco GMC
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Truck dealers incorporate price concession into their bids. Volvo didn’t offer equal concession to
all dealers
Volvo: There wasn’t competition in this particular bid contest
In order to have price discrimination the discriminated parties must compete
Meeting of the Minds
Copperweld Corp. v. Independence Tub Corp. (1984)
We hold that Cooperweld and its wholly owned subsidiary are incapable of conspiring with each other for
the purposes of Section 1 of the Sherman Act. To the extent that prior decisions of this Court are to the
contrary, they are disapproved and overruled
American Needle v. NFL (2010)
Issue: What rule should apply to organizations whose members are competitors, such as trade
associations, joint ventures, and professional sports leagues?
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Could the NFL and its teams manage intellectual property collectively?
Steven’s Last Decision: NFL’s exclusive licensing of teams’ individually owned trademark
interests should be treated as agreements among teams (competitors), not as a unilateral conduct
of the NFL
The legality of such concerted action must be judged under the Rule of Reason
11/2/10
Monsanto v. Spray-Rite (1984)
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Monsanto engaged in RPM “fair trade”
On August 31, 1968, Monsanto declined to renew its distribution agreement with Spray-Rite
Spray-Rite’s net revenues from sales of Monsanto’s herbicides in 1968 were about $16,000
The Federal District Court awarded Spray-Rite $10.5 million in damages
Affirmed
The Colgate Doctrine (1919): A manufacturer that announces its MSRP may refuse to deal with any
retailer that sells below these prices, as long as it makes this decision unilaterally
Don’t talk to one retailer about the other
Theatre Enterprises v. Paramount Film Distributing
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The defendant was a bunch of studios and distributors
The plaintiff was a suburban theatre owner that wanted first-run films
Just circumstantial evidence, nothing really showing an agreement
Matsushita Electric v. Zenith Radio (1986)
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Evidence of a conspiracy came out of cheaper prices for Japanese TVs
Conspiracy to monopolize the American market with Japanese TVs with predatory pricing
No evidence of collusion
Cement Manufacturer Protective Ass’n v. US
Interstate Circuit v. US
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Interstate sent a letter to other distributors that stated prices
The distributors began to fix their prices without any affirmation
The court inferred a tacit agreement
11/9/10
Maple Flooring Manufacturing Ass’n v. US
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Founded in 1897, the Maple Flooring Manufacturing Association is the only authoritative
source of technical information about hard maple flooring
MFMA’s membership consists of manufacturers, installation contractors, distributors and
allied product manufacturers who subscribe to established quality guidelines
Through cooperative member programs, MFMA establishes product quality, performance and
installation guidelines; performance and installation guidelines; educates end users about
safety, performance and maintenance issues
Shared information about their own costs
If you know the costs then you could easily fix prices
US v. Container Corp. (1969)
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Whether price information sharing about specific sales to customers is illegal
Court determined that this was illegal per se
Dissent says that it should be governed by the rule of reason
US v. United States Gypsum (1978)
Interseller price verification: illegal
Discourages price-shopping and reduces pressure on prices
FTC v. Cement
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74 defendants + the institute
Base point system: cost of the transportation from a base point to another location
No matter where you are you have to price the merchandise on the base point
Shipping doesn’t matter anymore, because the difference in costs are erased
Base point systems are per se illegal
11/16/10
RPM: The only way around the per se violation of RPM was by using the Colgate Doctrine MSRP. After
2007 RPM is now under the rule of reason
The argument against RPM is that it always increases prices
Mergers
Goals of the Guidelines: The Agencies seek to identify and challenge competitively harmful mergers
while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral
One issue is when one firm buys a large amount of shares of another company: Can be considered a
merger
In practice courts follow the guidelines
The unifying theme of these Guidelines is that mergers should not be permitted to create, enhance, or
entrench market power or to facilitate its exercise
A merger can enhance market power simply by eliminating competition between the merging parties.
This effect can arise even if the merger causes no changes in the way other firms behave. Adverse
competitive effects arising in this manner are referred to as “unilateral effects.” A merger also can
enhance market power by increasing the risk of coordinated, accommodating, or interdependent behavior
among rivals
There must be multiple factors to show that there is a risk of coordinated behavior among firms in a
market
1. Evidence of Adverse Competitive Effects
Must have real evidence in order to block a deal
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Actual Effects Observed in Consummated Mergers
Direct Comparisons Based on Experience
Market Shares and Concentration in a Relevant Market
-Today the agencies do not allow mergers only if there 3 to 2 or 4 to 3
Substantial Head-to-Head Competition
Disruptive Role of a Merging Party (maverick firm)
-Particular firms can be very important to competition
-Agencies often prevent large firms from acquiring maverick firms
2. Targeted Customers and Price Discrimination
Page 6: When examining possible adverse competitive effects from a merger, the Agencies consider
whether those effects vary significantly for different customers purchasing the same or similar products.
Such differential impacts are possible when sellers can discriminate, e.g., by profitably raising price to
certain targeted customers but not to others
3. Market Definition
Page 7: When agencies identify a potential competitive concern with a horizontal merger, market
definition plays two roles
First, market definition helps specify the line of commerce and section of the country in which the
competitive concern arises
Second, market definition allows the Agencies to identify market participants and measure market shares
and market concentration
Market definition focuses solely on demand substitution factors, i.e., on customers’ ability and
willingness to substitute away from one product to another in response to a price increase or a
corresponding non-price change such as a reduction in product quality or service. The responsive actions
of suppliers are also important in competitive analysis. They are considered in these Guidelines in the
sections addressing the identification of market participants, the measurement of market shares, the
analysis of competitive effects, and entry
The Agencies’ analysis need not start with market definition. Some of the analytical tools used by the
Agencies to assess competitive effects do not rely on market definition, although evaluation of
competitive alternatives available to customers is always necessary at some point in the analysis
Page 8: When a product sold by one merging firm (Product A) competes against one or more products
sold by the other merging firm, the Agencies define a relevant product market around Product A to
evaluate the importance of that competition. Such a relevant product market consists of a group of
substitute products including Product A. Multiple relevant product markets may thus be identified
Page 9: The hypothetical monopolist test requires that a product market contain enough substitute
products so that it could be subject to post-merger exercise of market power significantly exceeding that
existing absent the merger. Specifically, the test requires that a hypothetical profit-maximizing firm, not
subject to price regulation, that was the only present and future seller of those products (“hypothetical
monopolist”) likely would impose at least a small but significant and non-transitory increase in price
(“SSNIP”) on at least one product in the market, including at least one product sold by one of the merging
firms.
The agencies would block a merger if a maverick was involved
DuPont case
Geographic Market Definition
Page 13: The arena of competition affected by the merger may be geographically bounded if geography
limits some customers’ willingness or ability to substitute to some products, or some suppliers’
willingness or ability to serve some customers. Both supplier and customer locations can affect this
The scope of geographic markets often depends on transportation costs. Other factors such as language,
regulation, tariff and non-tariff trade barriers, custom and familiarity, reputation, and service availability
may impede long-distance or international transactions. The competitive significance of foreign firms
may be assessed at various exchange rates, especially if exchange rates have fluctuated in the recent past.
11/18/10
Whether several firms collude to violate antitrust
Whether one firm acts unilaterally to violate antitrust
Firms merge and hurt competition
Market definition comes up in the rule of reason or monopolization analysis
4. Market Participants
Page 15: All firms that currently earn revenues in the relevant market are considered market participants
Vertically integrated firms are also included to the extent that their inclusion accurately reflects their
competitive significance. These are large firms that operate in several areas
Firms not currently earning revenues in the relevant market, but have committed to entering the market in
the near future, are also considered market participants, by at least putting some money towards that goal
5. Market Shares
Page16: The Agencies normally calculate market shares for all firms that currently produce products in
the relevant market, subject to the availability of data
This is judged by looking at the annual revenues of the firm
Problem is that present revenues are not necessary future revenues so…
The Agencies also calculate market shares for other market participants if this can be done reliably their
competitive significance
Page 17: The Agencies measure market shares based on the best available indicator of firm’s future
competitive significance in the relevant market
HHI index lays out safe harbors
Page 20: The elimination of competition between two firms that results from their merger may alone
constitute a substantial lessening of competition
Page 20: Pricing of Differentiated Products
In differentiated product industries, some products can be very close substitutes and compete strongly
with each other, while other products are more distant substitutes and compete less strongly. For example,
one high-end product may compete much more directly with another high-end product than with any lowend product.
A merger between firms selling differentiated products may diminish competition by enabling the merged
firm to profit by unilaterally raising the price of one or both products above the pre-merger level.
Page 22: In many industries, especially those involving intermediate goods and services, buyers and
sellers negotiate to determine prices and other terms of trade. In that process, buyers commonly negotiate
with more than one seller, and may play sellers off against one another. Some highly structured forms of
such competition are known as auctions. Negotiations often combine aspects of an auction with aspects of
one-on-one negotiation, although pure auctions are sometimes used in government procurement and
elsewhere.
A merger between two competing sellers prevents buyers from playing those sellers off against each other
in negotiations. This alone can significantly enhance the ability and incentive of the merged entity to
obtain a result more favorable to it, and less favorable to the buyer, than the merging firms would have
offered separately absent the merger.
Page 22: Capacity and Output for Homogeneous Products
In markets involving relatively undifferentiated products, the Agencies may evaluate whether the merged
firm will find it profitable unilaterally to suppress output and elevate the market price.
A firm may leave capacity idle, refrain from building or obtaining capacity that would have been obtained
absent the merger, or eliminate pre-existing production capabilities. A firm may also divert the use of
capacity away from one relevant market and into another so as to raise the price in the former market.
Page 23: Innovation and Product Variety
Competition often spurs firms to innovate. The Agencies may consider whether a merger is likely to
diminish innovation competition by encouraging the merged firm to curtail its innovative efforts below
the level that would prevail in the absence of the merger.
Page 24: A merger may diminish competition by enabling or encouraging post-merger coordinated
interaction among firms in the relevant market that harms customers. Coordinated interaction involves
conduct by multiple firms that is profitable for each of them only as a result of the accommodating
reactions of the others.
The Agencies need to come up with history of the industry to see how the firms have acted in the past and
who is the “maverick”
11/23/10
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Collusion
Unilateral Conduct
Mergers
FTC Act § 5: “Unfair methods of competition”
Collusion
 Agreements in restraint of trade or commerce (Sherman Act §1)
 Conspiracy to monopolize any part of trade or commerce (Sherman Act §2)
-Can come in the form of vertical agreements
 Interlocking Directors (Clayton Act §8)
Per se v. Rule of Reason
Per se Illegal: Price fixing, output restraints, market divisions, boycotts
-What does price fixing mean? (Maricopa, Texaco)
-Business justification v. legality
Rule of Reason: Any potential agreement, if the party can insist that the agreement could lessen
competition
Given the fact pattern is there going to be some impact on consumers and are there competitive reasons
The BMI exception: Without us the market would collapse because of transaction costs
Every form of conscious understanding + communication can be seen as an agreement
Interstate Circuit is the borderline case for collusion
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Must be communication
Unilateral Conduct
 Monopolization and Attempt to Monopolize (Sherman Act §2)
(American Airlines, Loran Journal)
 Predatory Pricing (Brooke Group, AMR, Weyerhaeuser)
-Almost impossible to prove
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Unilateral Refusal to Deal and Essential Facility (Otter Trail Power, Aspen Skiing, Kodak,
Trinko)
Price Squeezes (Linkline)
-Manufacturers that operate at two-levels
-Legal
Exclusive Dealing (Griffith)
Generally speaking it is legal
Tying and Bundling (Clayton Act §3): Market power in the tying product, coercion to buy the
tied product, an effect in the market for the tied product
-The Kodak Case
-Block booking (Loew’s): illegal per se
-Loyalty and bundled discounts; market schemes
Nonprice restraints on distribution (GTE Sylvania): Is their actual impact on competition
PRM (Leegin): rule of reason or legal per se; unless there is collusion which is price fixing
Price Discrimination (Clayton Act §2): Insignificant
Monopolization
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Willful acquisition or maintenance of market power through exclusion of competition
The Cellophane Fallacy: At the prevailing (monopolistic) prices, there appeared to be high crosselasticity of demand between cellophane and other packaging materials
Market power in aftermarkets (Kodak v. ITS)
-No market power in the product, but it had significant market power in its aftermarket
Mergers
 What is the relevant market?
 Who are the participants?
 What will be the impact on competition?
 Will we have consumer injury?